KKR said on Tuesday it is buying 14% of China’s largest chicken meat farmer Fujian Sunner Development for $400 million as demand for safe food spikes amid scandals.
Sunner, the chicken meat supplier to the 2008 Beijing Olympic Games, breeds, processes and supplies chicken meat to China's fast food industry, food manufacturing industry and meat wholesale markets, according to the statement.
KKR’s investment comes as another food scandal roils the market. McDonald’s briefly suspended sales of chicken nuggets in China after a local unit of OSI Group allegedly sold it out-of-date meat.
Through its vertically integrated facilities, Shenzhen-listed Sunner has oversight of the full production chain, ranging from chicken farming to the management of feed mills to processing.
"Vertically integrated chicken farming is a key solution to the food safety threats facing China's animal protein sector," said KKR’s Julian Wolhardt.
Private equity investors, known as LPs, generally frown on PIPES (private investment into public equity) as they can theoretically make the investments themselves without paying fat fees to an intermediary. However funds have struggled to seal control deals in much of Asia and settled for minority stakes where China allows in order to put capital to work in the fast-growing economy.
“Partnering with companies that meet China’s demand for increased food safety is one of our key focuses for China investments,” said KKR’s Greater China head David Liu.
Chicken is the fastest-growing protein in China, yet it represents only 17% of its total meat consumption, versus nearly 40% in Taiwan and Hong Kong.
Per capita chicken consumption in China is 10kg per year, at a very low level compared to 43kg in the US. There is also a trend towards large-scale chicken breeders supplying the market.
China's large-scale producers only account for 30% of total supplies, a significant increase from 12% in 2007, but still very low compared to mature markets like the US, where over 95% of supply comes from large-scale producers.
"Chicken is the most efficient form of animal protein, and the market demand for high-quality chicken products is expected to remain strong,” said Sunner’s chairman Fu Guangming in a statement.
The transaction is subject to customary approvals.