《道琼斯》 2008年8月19日
记者：Anjali Cordeiro

“中国市场所有的食物、饮料及消费品行业都已经饱和，但却各自为营，没有整体性”，布鲁诺·兰纳说道，“但我们还尚不清楚中国市场将如何整合”。布鲁诺是战略咨询公司贝恩公司驻上海的合伙人，专注于消费品和零售行业的咨询业务。

Valuations Keep Consumer Companies Cautious On Chinese Deals
By Anjali Cordeiro
Of DOW JONES NEWSWIRES

U.S. consumer product makers on the lookout for deals in China are being pushed to the sidelines as hefty valuations are making affordable acquisitions in that market tough to come by.

American consumer companies - including food and beverage makers - are keeping an eye open for possible acquisitions to boost their local Chinese operations. Buying or investing in local companies with popular brands that cater to regional consumer tastes can help consumer multinationals quickly gain a bigger foothold in this fast-growing but fragmented market. Such deals also have the potential to give U.S. consumer goods makers more power to compete against the myriad local and international products that line Chinese supermarket shelves.

But soaring interest in the Chinese market and consumer has made such deals pricey, forcing most large U.S. consumer companies to hold back on deals that could potentially speed their growth in China.

"All of the food, beverage, and consumer sectors are very crowded in China. There is no consolidation and it is all very fragmented," said Bruno Lannes, a partner who focuses on retail and consumer products businesses in the Shanghai office of consultancy Bain & Co. "It's not clear how the consolidation will occur in China."

Even consumer companies that have in the past been successful in investing in Chinese businesses are staying cautious for now. "In the last two years acquisitions have been very expensive. And keen though we are, they have to make sense for shareholders. So we have passed on some for that reason," said Chris Warmoth, executive vice president for Asia Pacific at H.J. Heinz Co. (HNZ). "But prices vary and fluctuate, so we remain watchful."

Heinz, which acquired a majority stake in Chinese frozen food maker Long Fong in its fiscal 2005, has managed to eke out more growth and invested further in that business.

Information needed to calculate the multiples for deals in China aren't always disclosed, making such numbers hard to come by. But according to a snapshot of some recent deals compiled by data provider Dealogic, U.S. blank-check company Heckmann Corp. (HEK) in May agreed to buy bottled water company China Water & Drinks Inc. (CWDK) for $625 million, with the value of the deal adding up to 35.7 times operating profit or EBITDA. In June last year Warburg Pincus acquired 7.4% of Synutra International, a Chinese maker of dairy-based nutritional products for $66 million, or 34.2 times its operating profit, according to Dealogic.

"Deal flow wise we are doing less due diligence and more problem solving this year," said Steve Vickers, chief executive of International Risk, which does research for companies looking to invest in China.

U.S. consumer companies are likely also staying cautious because some recent high profile investments involving foreign consumer companies have gone sour, according to Vickers.

Most famous is the public falling out between China's Hangzhou Wahaha Group and France's Groupe Danone (BN.FR) on a massive beverage joint venture they have been operating in China.

Consumer companies are unlikely to face government opposition on entry into segments like yogurt or beverage, Vickers said. U.S. consumer companies are showing interest in deals, he said, but are complaining about high valuations and reluctant to jump in at a time when the Chinese renminbi has appreciated. Although the Shanghai stock exchange has fallen roughly 50% for the year, U.S. consumer companies still face high multiples because many of the companies they would like to buy aren't publicly traded, he said.

Drew Nuland, a former executive for Bacardi in China and a consultant to private equity and consumer companies in the region, said that Western spirits companies are likely eager to buy local spirits companies in China. Western companies are growing quickly in China but they control a tiny fraction of the overall spirits market. The giant market for spirits in China is dominated by local players.

"Everyone involved in M&A believes there is no way these (Western) companies will try to operate without trying to buy major Chinese spirits brands. They want to be major players in China, and to do that they will want to get into local China spirits," Nuland said.

But the prices of many local spirits companies' prices have been bid up so much that an acquisition has become pricey, he said. Pernod Ricard S.A. (12069.FR) and Diageo PLC (DEO), which are among the Western spirits companies with the largest presence in China, say they don't comment on future acquisitions. (Diageo has a 49% stake in Chinese alcohol maker Sichuan Chengdu Quanxing Group)
Coca-Cola Co. (KO), which dominates the carbonated soft drink market in China but faces much stronger competition from a local brand in the noncarbonated sector, is noncommittal on its acquisition strategy for the country. But Paul Etchells, deputy group president for the beverage icon's Pacific Group, acknowledges Coke keeps its eye open for possible buys in the region.

"I can't deny that we look at who else is out there but we've not seen an opportunity that works for us, and valuation is obviously an aspect of that. Multiples are fairly high," he said.

Meanwhile, some U.S. consumer companies are treading carefully because the right fit can be hard to come by in China, where some sectors are yet to develop. Campbell Soup Co. (CPB) entered the Chinese soup market recently and is boosting growth by gradually moving into new cities.

"We are open to acquisitions, [but] we have not found a lot of good matches or targets," said Larry McWilliams, president for Campbell International. "Because there isn't a big commercial soup market in China, you don't have people who have been in these categories and have developed capabilities that we can then buy to speed things up."

-By Anjali Cordeiro, Dow Jones Newswires; 201-938-2408; anjali.cordeiro@dowjones.com [ 08-19-08 0930ET ]
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