Blog: Dean BestPrivate equity bets on Eastern promise

Dean Best | 12 August 2009

Those private-equity boys like to think they know a good deal when they see one - and they often see the food and food retail sectors as ripe for investment. 

The global recession, however, has meant a long period of radio silence from private equity, with the lack of finance hampering any ambitions for fresh investment.

Nevertheless, today (12 August), came a sign that, in some parts of our industries, private equity remains willing to pounce. And it's in China's still fast-growing retail sector that we have seen the most recent deal.

Wumart Stores, Beijing's biggest retailer, has struck a HK$1.65bn (US$212.9m) share deal with private equity firms TPG and Hony Capital.

After the transaction is complete, the funds will hold a 10.95% stake in Wumart, which posted a 21% jump in half-year profits yesterday.

Indeed, Wumart's buoyant sales figures highlight just why private equity see China's food retail sector has an attractive investment.

The company is continuing to post bumper sales and earnings growth and, what's more, continued investment in its stores is keeping comparable-store sales ticking along nicely.

And, more broadly, China's retail sector remains in robust growth. Government stats out yesterday said that retail sales of consumer goods climbed 15% in the seven months to July and it is this continued growth that would have been a factor when TPG and Hony decided to put pen to paper.

Tomorrow, Wal-Mart publishes its latest financial results. The world's largest retailer, of course, is building a fledgling business in China. It will be interesting to hear just how it sees the retail landscape in the country.


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