LVMH gets a big serving of xiaolongbao

May 02, 2014 16:07
Crystal Jade, a Chinese restaurant chain known for its steam buns, or xiaolongbao, is expected to gain from LVMH's strong presence and wide expertise in Western markets. Photo: Crystal Jade

LVMH Moet Hennessy Louis Vuitton got hungry and took a big bite out of Asia's catering sector.

L Capital Asia, the private-equity arm of the French luxury goods giant, announced on Wednesday the acquisition of a more than 90 percent stake in Singapore-based Chinese restaurant group Crystal Jade Group in a deal estimated at US$100 million.

With 117 outlets across 18 cities in nine countries in the region, Crystal Jade is well known for its steam buns, or xiaolongbao, and wonton noodles.

In recent years, the group has expanded its offerings to include Korean restaurants, Continental boutique-style cafés, outlets for Lanzhou lamian noodles, Shanghai specialties, Cantonese barbecue meat, congee and Hong Kong dim sum, as well as bakeries serving international pastries and bread.

In giving Crystal Jade a high valuation, L Capital Asia may have taken into account its robust presence in Beijing, Shanghai, Qingdao, Guangzhou and Foshan, highly urbanized regions with a bustling middle class and wealthy population.

The central government's frugality campaign is having a telling effect on the catering industry, especially among operators of high-end restaurants that relied heavily on officials' penchant for lavish receptions.

Crystal Jade, which is focused on the mid-tier market, may have suffered less but its growth momentum is likely to slow amid the nation's sputtering economy.

But with the new shareholder’s support, Crystal Jade will have the means to reinvigorate itself and pursue its initial public offering goal.

The restaurant has plans to expand to Europe and the Middle East, as well as other parts of the world. That ambition can find realization following the IPO and with the support of LVMH, which has a strong presence and wide expertise in those regions.

So "East meets West" is expected to be a major theme in this deal. Crystal Jade stands to gain from the LVMH connection by taking advantage of the luxury brand's expertise in the Western markets and its vast retail presence to negotiate better deals with landlords and other suppliers. 

The opportunities presented by the tie-up notwithstanding, L Capital Asia is primarily concerned with growing its investment in the Chinese restaurant chain, and is likely to head for the exit once the valuation reaches its target for the highest return.

Currently, L Capital Asia has a war chest of US$635 million, and its investment size ranges from US$25 million to US$100 million per deal. It is now a shareholder of 11 companies including Hong Kong-listed Sincere Watch and Jewelry (00444.HK) and Emperor Watch and Jewellery (00887.HK).

It targets companies in such areas as fashion, wine, cosmetics, watches and jewelry, where it can fully leverage the strengths of LVMH.

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EJ Insight writer