Chinese conglomerate Citic Ltd is clubbing together with a unit of sovereign wealth fund China Investment Corporation and others to buy Australia Nature’s Care Biotech for less than A$800 million ($620 million), according to people familiar with the deal.
As part of the agreed deal, the Wu family, which founded Nature’s Care in 1990, plans to keep over 10% of the Sydney-headquartered business, the two people said.
The buying consortium comprises CIC-managed China Jianyin Investment and JIC Huawen Investment, together with Tamar Alliance Partners, which is run by Citic Ltd and Hong Kong's Dah Chong Hong Holdings, according to a joint statement on Wednesday. No financial details were revealed.
Together they won an auction for a majority stake in Nature’s Care, Australia’s third-largest vitamins firm by sales after Swisse Wellness and Blackmores. But they stopped short of paying the price that the founding family has held out for since 2016, said a third person familiar with the family’s expectations.
Co-founders Jina Chen and Alex Wu courted interest from China in 2016 after Guangzhou-headquartered Biostime, bought 83% of Swisse Wellness for a whopping A$1.4 billion in 2015, or 22.5 times the unlisted firm’s earnings at the time.
Other Australian vitamin makers also saw the opportunity and moved quickly.
Private equity firm Primavera Capital teamed up with Shanghai Pharmaceuticals to buy Australian vitamins maker Vitaco for A$313.7 million in 2016.
However Nature’s Care auction, led by JP Morgan, stumbled as bidders declined to pay the price the Wu family wanted, one of the people familiar with the deal said. Potential investors also had concerns about the relationship between Nature's Care and its largest customer Chemist Warehouse for its best-selling brand, Healthy Care, according to the Financial Review.
The Wu family's plans to retain a 10%-plus stake in Nature’s Care is due to the upside they see from the firm’s plans to expand in China and Southeast Asia, the people familiar with the deal said.
China’s top policy planner told local food companies last year that they should fan out and acquire foreign food processing technology and penetrate the global food supply chain – they are rushing to comply.
“There are not many local name brands that consumers trust,” the National Development and Reform Commission (NDRC) damningly said in an online statement released on January 11.
This latest fillip by regulators is part of China’s long-running campaign to overhaul the country’s dire food safety record after local firms were caught selling infant milk formula adulterated with melamine that sickened around 300,000 children in 2008. Another common scandal is the distribution of "gutter oil" – made from waste products – as cooking oil.
China implemented a food safety law in 2015 and continues to tighten regulations on food producers and retailers, but still the country’s Food and Drug Administration said it had uncovered about half a million food safety violations in the first nine months of 2016.
In recent years record numbers of Chinese companies have paid billions of dollars for food companies around the world. They have swallowed everything from baby milk formula makers to seed merchants.
Consultants at PwC estimate China's health food market will grow by Rmb100 billion by 2021.
The concept of taking preventative remedies chimes well with the millennia-old Chinese culture of keeping a natural balance.
That said, Chinese enterprises have become more rational and prudent when investing overseas after the government clamped down on expensive offshore purchases of little strategic value in late 2016, said Tu Guangshao, president and vice chairman of CIC, speaking at the country's showpiece annual Boao Forum on Monday.
Tu, a former Shanghai vice mayor, said the shift towards protectionism had also contributed to the decline in Chinese offshore investments, with more deals blocked by foreign governments and fewer foreign companies willing to sell to Chinese buyers.
According to China's Ministry of Commerce, the total value of the country's outbound mergers and acquisitions last year amounted to $120 billion, representing a 29.4% decline from the record year of 2016.
Countries from Australia to the US are increasingly using foreign investment controls to block Chinese takeovers on the grounds of national security and competition concerns. In the US, the Department of Homeland Security has designated food and agriculture as one of 16 areas it considers as critical infrastructure.
However, acquisitions of supplement firms in Australia seem to be getting the green light. People involved in the sale of Nature's Care say they are confident the acquisition process will run smoothly.
The transaction is subject to regulatory approvals and is expected to close in the second half of 2018.