Ontario Teachers' Pension Plan and Hong Kong-based private equity firm FountainVest Partners have bought control of yoga-to-organic food group Pure, people familiar with the deal said on Tuesday.
Co-founder of the Hong Kong-based firm, Bruce Rockowitz, controlled about half of the lifesytle group’s shares while the Fung Group, the private holding company of Hong Kong-based brothers Victor and William Fung, owned 10% of its stock.
Both have sold shares to the consortium of funds in a deal which values the group at $400 million to $500 million, the people added.
The private equity funds have see Pure as a bet on Chinese consumers’ spending more on wellness and their lifestyle. As a percentage of the population, fewer Chinese people hold a gym membership than in the US, but it's growing fast.
Pure has yoga studios, an online yoga video platform, fitness centres, raw organic healthy eating interests and performance activewear.
This shift in the attitude of the burgeoning Chinese middle class is already transforming swathes of industry: demand for vitamins has sparked a wave of Chinese outbound M&A while brokerage CLSA expects the ranks of Chinese tourists going abroad to swell to 200 million by 2020.
“It’s a change in culture out here, health has become the No. 1 thing that people are concerned about. That industry is the luxury industry right now,” said Rockowitz, who founded the firm in 2002.
Pure already had plans to expand in mainland China. In 2016 and 2017, the group has opened seven locations, including three yoga studios – one each in Hong Kong, Shanghai and Singapore – and two fitness centres in each of Hong Kong and Singapore.
“Anyone that doesn’t embrace the change from a business perspective is going to get lost,” said Rockowitz during a panel discussion at the Milken Asia Summit in September.
The size of the market opportunity has prompted many consumer-facing businesses to expand in the region. Consultants at PwC estimate China's health food market, for one, will grow by RMB100 billion ($14.6 billion) in the next five years.
To be sure, not all gyms have fared well in the region. A Hong Kong court ordered the winding up of loss-making gym California Fitness in November, 2016.
The other co-founder Colin Grant will remain as Pure’s chief executive. He and Rockowitz will remain as minority shareholders.
Neither has taken money out of the firm up until this point, said one person familiar with the matter.
A spokeswoman for Pure said: "As Pure Group is a privately held entity, they do not comment on the value of partner’s investments."
The owners started considering options last year and at one point were mulling an IPO in Hong Kong, which could potentially increase brand awareness amongst consumers given the press coverage that usually attends a listing in the city.
However, the sale process flushed out buyers that could help the group expand in China.
"We are convinced that the market for health and wellness in Asia will continue to grow in the years ahead especially in emerging markets such as China," said Frank Tang, the managing partner of FountainVest in a press release.
FountainVest saw off competition for Pure from rival Chinese private equity firm Primavera and led the consortium of funds that won the auction.
FountainVest’s investment portfolio includes China's number one running mobile app Codoon, China's largest lifestyle service app Meituan/Dianping, the China joint venture of the largest global sports talent agency WME/IMG, and Chinese digital billboard network operator Focus Media.
Ontario Teachers' experience in the fitness sector includes health club chain 24 Hour Fitness and GNC, a specialty retailer of health and wellness products.
Morgan Stanley was the sole financial adviser on the transaction. Law firm Baker & McKenzie advised the sellers while Kirkland & Ellis advised the consortium of funds.