Top hot pot chain up for sale

PUBLISHED : Thursday, 26 April, 2012, 12:00am
UPDATED : Thursday, 26 April, 2012, 12:00am


Foreign investors who want to be part of China's growth story are looking at a majority stake of Xiabu Xiabu, a popular hot pot chain restaurant on the mainland now up for sale.

Private equity firm Actis bought a majority stake of Xiabu Xiabu Catering Management for US$50 million in 2008 but is now cashing out of its investment, according to people briefed on the matter. Xiabu Xiabu operates hot pot restaurants in major Chinese cities including Shanghai and Beijing.

Actis, a spin-out of the British government's investment agency Commonwealth Development Corporation, is trying to sell its holdings in Xiabu Xiabu for more than US$150 million, at least a three time return on its original investment, said the people.

'For Actis, it's proved to be a good investment and now the question is how much it can sell to the next buyer,' said one person who was approached by Actis regarding the planned sale of the stake. The person said valuation would be the key issue.

The sale is considered a rare opportunity for foreign investors to obtain control of a household-name restaurant brand on the mainland as many are state-owned or family-owned businesses that are usually not up for sale.

There have been also growing concerns from many young Chinese nationalists who say Beijing should not let foreign investors invest in too many famous local brands. Huiyuan, China's top juice maker, was once targeted by US beverage giant Coca-Cola but failed to gain Beijing's approval.

Actis has hired investment banks to advise it on the sale, which is considered still in the early stages, as no formal bids have come in. The potential deal has been discussed in the private equity community in recent weeks, in particular in Hong Kong where several private equity funds have shown their interest.

One of Xiabu Xiabu's main competitors on the mainland is Little Sheep, which was listed in Hong Kong and taken over this year by US fast-food restaurant giant Yum! Brands, the owner of Pizza Hut and KFC. Little Sheep's early investors included two private equity funds - British investor 3i Group and China-focused Prax Capital. They both made more than three times their original investment in Little Sheep when they cashed out.

Xiabu Xiabu was founded by a Taiwanese businessman in Beijing in 1998 and has expanded aggressively in the past few years. Xiabu Xiabu currently runs more than 240 restaurants around the country, according to its company website, which also says it aims to expand its restaurant network to the rest of the world. A typical meal at Xiabu Xiabu costs about 30 yuan (HK$37) per person, which is similar to McDonald's.

'I think the Little Sheep deal has set a benchmark there for other similar Chinese restaurant deals in the future. The new buyer of Xiabu Xiabu can either list the company or sell it to a foreign company like Yum! Brands,' said one of the people.

One major issue surrounding the deal is food safety, a long-time concern for both the government and public on the mainland.

Last year, several mainland restaurant operators including Hong Kong-listed Ajisen Ramen, were caught in food-safety related scandals.

Ajisen's share price sank and it later apologised to its customers and promised to improve.