Asian Venture Capital Journal | 05 July 2019
LionRock Capital, an Asian PE firm that counts Italian football club Inter Milan among its previous investments, has launched a sports-focused fund with retailer Li Ning participating as an anchor LP.
The plan is to target brands at the nexus of consumer and sports – such as clothing, shoes, accessories and food and beverage – that have growth potential in China. Li Ning, the country’s largest sportswear retailer with RMB10.5 billion ($1.5 billion) in annual revenue and 7,000 stores, will share its distribution expertise. Further input will come from other, unnamed strategic investors that have large operating platforms in China, said Daniel Tseung, LionRock’s founder.
“A lot of the companies we are talking to are not that visible in China, so it’s attractive to them,” Tseung added. “For example, there are businesses in Europe that have been around for a long time but have limited growth prospects in their home markets. They would love to come to China for the consumer growth story.”
The target size of the fund – and Li Ning’s contribution to it – have yet to be announced. As part of the arrangement, Li Ning himself, the Chinese Olympic gymnast who established the company that bears his name, will serve as non-executive chairman of LionRock.
LionRock currently has more than $750 million under management across one fund, currently in divestment mode, and several special purpose investment vehicles. Most of its LPs are entrepreneurs and family offices from around the world. The firm was established by Tseung in 2011 after a 10-year stint with the PE division of Hong Kong-based conglomerate Sun Hung Kai Properties.
Investments are flexible in nature, moving between equity, convertible debt, rollover debt and other instruments much like a special situations fund. However, they all follow a broad China consumer theme, with sports brands, new economy, food and beverage, and healthcare all represented in the portfolio. Li Ning is not the firm’s first strategic partnership within sports.
In 2018, LionRock invested in Suning Sports, which holds the Chinese media rights to a range of sporting competitions, including England’s Premier League, Spain’s La Liga, Italy’s Serie A, Germany’s Bundesliga, and France’s Ligue 1. It participated in a $600 million Series A round led by Goldman Sachs and Alibaba Group that valued the business at more than RMB10 billion.
“On a macro level, we took the view that the US has a media empire in ESPN and Europe has Sky Sports, but China doesn’t have that type of platform,” Tseung explained. An increasing amount of capital is now entering the space, with iQiyi Sports – a spin-out of Baidu-backed streaming platform iQiyi – launching not long after the Suning Sports round was announced and signing up its own PE backers. Tencent Holdings has its own platform, which owns the China rights to NBA basketball.
Suning is primarily an electronics retailer – it has more than 11,000 stores and generated revenue of RMB336 billion in 2018 – but the company is one of several Chinese strategic players looking to expand into complementary consumer verticals, such as media, and sports, with a view to engaging with consumers more effectively and driving core business activities.
Suning became the majority owner of Inter Milan in 2016, buying a 69% stake from Erick Thohir, an Indonesian media tycoon who led an acquisition of the club in 2013, and longstanding shareholders the Moratti family. This ultimately led to another investment opportunity for LionRock, which earlier this year acquired Thohir’s remaining 31% interest.
Inter Milan is one of numerous European football clubs now under Chinese ownership, although arguably one of few where there is a clear strategic rationale. “It is a unique platform. You can’t replicate any of these football clubs, they are special,” Tseung said. “We had already partnered with Suning on a previous deal and we thought it was a great opportunity to invest.”
He is similarly bullish about the broader outlook for sports in China, especially given the government’s ambition to turn it into an industry worth RMB5 trillion by 2025. “Ever since the 2008 Beijing Olympics, it’s been a good industry to be in,” Tseung added. “The government is supportive, and parents are spending more money on education, healthcare and sports for their kids. There is a big opportunity in consumption around that.”