PE Firms Circle Chinese Stroller Maker

HONG KONG (Reuters) – Private equity firms are expected to bid for Goodbaby Group after its top shareholder hired Morgan Stanley (MS.N) to sell its stake in China’s largest baby stroller maker, sources said on Friday.

A deal for Goodbaby, which makes pushchairs and other goods for babies for brands including Quinny, Nike Kids and Tommee Tippee, could be worth around $300 million, sources close to the situation told Reuters.

In China, Goodbaby now controls nearly 70 percent of the domestic stroller market and it makes two out of every five strollers sold in the United States, according to a recent Forbes magazine article.

While the Goodbaby band is not familiar to many of its foreign consumers, it is an influential name in the financial world as it was the target of China’s first Western-style leveraged buyout (LBO) deal completed in 2006.

In early 2006, China-focused private equity firm Pacific Alliance Group (PAG) bought a 67 percent stake in Goodbaby for $122.5 million and Goodbaby had said it planned to go public in Hong Kong in 2007, but its listing plan was later delayed.

“It’s definitely going to be a high-profile deal for many reasons — highly consumer-driven business, China’s first LBO deal, which means rare chance for foreign investor to control a leading Chinese firm,” said one of the sources.

“And of course, the competition for the deal will be naturally very tough,” said the source, adding deal flow in Asia has been rising quickly in the past few months as global stock markets recover.

Private equity investment has a brief history in China and the government is especially concerned about deals involving a major or influential domestic companies.

Buyout deals are rare in China partly because Chinese private entrepreneurs are often unwilling to give control of their family business or the government is reluctant to approve big foreign purchases in some strategically sensitive domestic sectors.

MARKET LEADER

Goodbaby owns and operates chain stores to sell baby products in major Chinese cities and it plans to expand onto the Internet to boost its sales as more and more young Chinese parents now prefer online shoping.

The global financial crisis has hurt Goodbaby’s exports but the firm is still keen to expand its international market share and a listing plan, either in Hong Kong or mainland China, is still on the agenda of its top management, said the sources.

The first-round bids were expected to arrive soon, said the sources, who declined to be identified as the bidding process is confidential.

More than a dozen global and Chinese private equity firms, including U.S. giant TPG Capital [TPG.UL] and Swedish company EQT Partners, had been looking at the potential deal in the past few weeks, although no formal bids had been made, the sources said.

Goodbaby and TPG declined to comment, while Morgan Stanley and PAG were not immediately available for comment. EQT could immediately be reached for comment.

Despite the financial crisis, China remains as the focus of global dealmakers who have shown more aggressive moves in the past few months.

Last week, U.S. firm Bain Capital agreed to buy a major stake in China’s top home appliance retailer GOME (0493.HK), beating rival bidders including Kohlberg Kravis Roberts & Co [KKR.UL] and Warburg Pincus [WP.UL], Reuters reported. 

Last month, TPG said it agreed to buy about $80 million worth of convertible bonds with warrants in mainland Chinese shoe retailer Daphne (0210.HK).

By George Chen and Michael Flaherty
(Additional reporting by Samuel Shen in Shanghai; Editing by Lincoln Feast)