Hong Kong-headquartered private equity firm LionRock Capital is preparing to launch a new fund with the capacity to deploy up to USD 1bn, as it seeks to expand its portfolio of European and international consumer brands with an Asia angle, two executives at the firm have told this news service.
The owner of Swedish outdoor specialist Haglöfs and former owner of British footwear brand Clarks will aim to raise USD 500m in commitments, with co-investment capabilities boosting the total deployment capacity to as much as USD 1bn, Managing Director Karen Lai and Head of Europe Tom Pitts said in an interview.
It will be LionRock’s third fund and like the other two it will be backed by former Olympic gymnast and sportswear executive Li Ning, who is also behind the Chinese sports brand that shares his name.
LionRock leverages a wealth of local resources and a proven network to accelerate a foreign brand’s Asian expansion, the two executives said. “Li Ning [HKG:2331] itself has over 7,000 points of sales in China and a depth of understanding of the Chinese consumer, which is unrivaled,” Lai added.
The fundraising push will build on the incumbent Fund II, which raised USD 300m in 2022. Li, who also serves as a non-executive chairman to the GP, is a cornerstone LP for the LionRock funds. Other existing LPs include family offices, entrepreneurs in the consumer space, high- net-worth individuals and some institutional investors, Lai said.
The firm targets mid-size buyout opportunities in the consumer discretionary space, ranging from health and nutrition products to apparel, footwear and segments of outdoor pursuit, Pitts said. Europe is a key focus, driven by attractive valuations and a wave of succession challenges among family-owned businesses on the continent, he added.
“Next generation of family ownership may not be appropriate for those family members or the company, casting a confusing fog around corporate direction and eroding all the good work done before,” Pitts argued.
Some legacy brands can also come with inefficiencies and outdated decision making, but LionRock believes these challenges can be addressed while preserving their heritage, the two executives said.
“Here one needs to be empathetic and alert to the company’s history, giving those elements an active voice – but [with a strong focus] on our responsibility to give the sort of makeover that will allow the company to thrive through the long term,” Lai said.
Aside from Europe, the firm is also scouting for deals in Japan, South Korea, Australia, and New Zealand – countries where it sees promising innovation in design and product development. The US remains on its radar, Pitts said, while acknowledging that cross-border regulatory hurdles pose challenges for Asian investors in that market.
Marketing is one area where LionRock seeks to bring value to brands looking to enter China, particularly around social media, given the outsized purchasing online, they said.
“[When marketing in China], you need to choose your platform and make your key influencer bets carefully as a false step may prove not just costly, but could cause irreparable damage to the brand,” Lai said. “What could be thought of as innocuous testing back home may be digested very differently in China.”
While foreign consumer brands see the appeal of tapping into China’s vast market that addresses a population of 1.2bn, finding the right domestic partner is essential, given the “deep bruising” that some international brands experience in their China strategy, the executives said. There is “no question” you have to pick your partner well and spend time to understand the nuances of the local consumer. Often, promises of quick money are ill conceived and lack the depth of a coherent localized market strategy, they added.
“We are not … looking for short term cash flow fixes that rapid-fire licensing deals can bring – but rather handle the brand in a way that curates real value through surgical positioning and thoughtful profiling,” Lai said. “Ultimately, the product needs to speak on point to the audience we are looking to connect with.”
LionRock’s major deals include footwear brand Clarks, which it bought in 2020 and sold to Viva China in 2023. According to the executives, the deal returned 2.5x MOIC in a little over two years. Haglöfs was acquired in December 2023 from Japan-based ASICS Corp [TYO:7936].
Fundraising pitch
LionRock recognises the challenges of fundraising for this strategy, especially as China’s consumer market struggles with weakened sentiment driven by the ripple effects from the property sector downturn.
“All too often today, a question of whether to allocate capital to China begins with the open statement of whether the country is even investable,” Pitts noted. “This a landmark shift from 10-15 years ago when everyone had dedicated exposure to the region.”
But Pitts said he believes the current environment is just part of the economic cycle and that the foreign under-investment is temporary. When the region rebounds, funds such as LionRock, which continue to deploy throughout the cycles, are poised to capitalise on the resurgence, he added.
Ultimately, the pitch to investors is that tapping a 1.2 billion-large consumer market can “supercharge growth” for brands – as long as one finds the right product in the right segment.
One only needs to look at the experience of Arcʼteryx (of Canadian origin, owned by Amer Sports), with more than half of that brand’s revenue now coming from China, Pitts said. “What is true for Arcʼteryx is true for so many brands that have led with great product and a thoughtful, localized plan.”
by Min Ho ( Mergemarket )
Article extracted from https://ionanalytics.com/insights/uncategory/li-ning-backed-lionrock-looks-to-deploy-usd-1bn-into-european-brands-via-third-fund/
