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The Overseas M&A Process Of Li Ning'S Family Is Accelerating, But The Challenges Are Still Ahead

2022/6/11 11:44:00 193

The largest shareholder of Li Ning, Extraordinary China, will once again take over the British shoe brand Clarks. This is the third international brand of Extraordinary China controlled by the Li Ning family to be recorded since 2020.

Compared with the "Li Ning" brand, the largest shareholder of Li Ning, Feifan China, is much more low-key. However, with Fantastic China as the platform, the overseas M&A process of the Li Ning family is accelerating - in 2020, Fantastic China won the controlling stake of the local brand Fort Shilong in Hong Kong; At the beginning of 2022, it completed the acquisition of the century old Italian luxury brand Amedeo Testoni.

In recent years, with the rise of "national trend", the competition of local sports brands in the domestic market has become increasingly intense, and expanding overseas markets has become an inevitable choice. Behind the expansion of Extraordinary China is the pressure of local sports brands competing in Red Sea.

Is successive overseas mergers and acquisitions a panacea for maintaining competitive advantage? On June 7, Li Yingtao, a senior analyst in the brand retail industry of Analysys Analytics, replied in writing to the reporter of the Daily Economic News that overseas M&A is a necessary step, but after that, the problem of (how to achieve) localization of the overseas market should be considered.

　　 The acquisition of Clarks will be finalized, and the Li Ning family's overseas mergers and acquisitions will be another success

If all goes well, Extraordinary China controlled by the Li Ning family will become the third international brand since 2020. According to the announcement, after the special shareholders' meeting held on June 15 passed a resolution, its acquisition of the British shoe brand Clarks (Cheerley) will finally be finalized.

In recent years, Clarks' performance was significantly affected by the epidemic, and its income was nearly halved. The announcement shows that Clarks' revenue in the past two years was 779 million pounds and 926 million pounds respectively; Net profit was - 151 million pounds and 53 million pounds respectively. Compared with 2019 before the outbreak, Clarks' global income reached nearly 1.4 billion pounds. In addition, so far, Clarks' main market is still the European and American markets. In the past three years, its revenue in the main markets accounted for more than 80% of Clarks' total revenue.

In its announcement, Feifan China said that after the epidemic, the Board of Directors believed that Clarks had growth potential by entering the Asian market (especially the Chinese market) and improving the utilization rate of online platforms. In addition, the Board of Directors believes that the transaction will create synergy between Clarks and multi brand footwear and clothing business (in marketing, supply chain solutions and distribution channels), and further expand the global market of the Group.

According to the agreement, after the completion of the acquisition, Clarks will become an indirect non wholly owned subsidiary of Viva China. According to the announcement, Extraordinary China will continue to develop its Clarks business through measures such as improving operational efficiency, redefining customer classification and strengthening brand building.

In the announcement, Fantasy China said that it believed that the management team of multi brand shoes and clothing business and Fantasy China could reverse the financial performance of Clarks, thus expanding the income source of the group. At the same time, the Board of Directors also believed that the global retail market would recover after the epidemic, and the business performance of Clarks would also improve.

Ma Gang, a clothing retail expert, told the Daily Economic News via WeChat on June 6 that, in general, M&A focuses on three aspects, namely, the tangible assets of the other party, such as production capacity; Intangible assets, such as brand value and intellectual property rights; Value added part, such as market complementarity and R&D complementarity of both parties. Therefore, for overseas expansion, on the one hand, the acquisition target has a high cost performance ratio, and the acquirer has a strategic plan for expansion, it is easy to form an acquisition. Extraordinary China integrates the large garment industry through multiple brands, and multiple brands can form resource integration and complementation.

Accelerate the expansion, and successively acquire Castle Lion Dragon Amedeo Testoni

The Li Ning family is accelerating its acquisition and expansion, and has at least two brands in the past two years.

In July 2020, Extraordinary China completed the acquisition of the controlling right of the local clothing brand Fort Shilong in Hong Kong. Bao Shilong is mainly engaged in the retail and distribution of leisure clothing. In the announcement at that time, Special China said that Bao Shilong has the potential to further promote its brand in China; At the beginning of 2022, Extraordinary China completed the acquisition of the century old Italian luxury brand Amedeo Testoni.

As for the reasons for the acceleration of Li Ning's overseas mergers and acquisitions in recent years, Li Yingtao, a senior analyst in the brand retail industry of Analysys, told the Daily Economic News in writing on June 7 that, on the one hand, resources, funds and capabilities are the basic factors for brands to conduct overseas mergers and acquisitions; On the other hand, facing the future development, for Li Ning brand, the Chinese market will gradually become saturated in the future. To maintain sustainable growth, it mainly depends on the overseas market.

Photo source: Screenshot of Li Ning's 2021 annual report

As competition among local sports brands intensifies, M&A is becoming a "sharp weapon" for brands to expand their markets.

Driven by the popularity of "national fashion", the local sports brands will have a brilliant financial performance in 2021. In terms of revenue scale, Anta still ranks first among local sports brands, with revenue approaching 50 billion yuan and net profit increasing by 49.55% year on year, the highest growth rate in ten years; Li Ning, on the other hand, broke through the revenue threshold of 20 billion yuan, with net profit growth reaching 136.14%; The third special step also achieved a breakthrough in revenue and entered the 10 billion camp.

Behind the rising revenue, the "hand to hand fight" between local sports brands is becoming increasingly fierce. After the story of "national trend", overseas revenue acquisition has become the key to expand the market for local sports brands.

Overseas M&A is a necessary step for internationalization, but the challenge is still ahead

Everyone wants to find the next "FILA".

In 2009, Anta bought the trademark use right and management right of Italian century old sports brand FILA in China from Belle International at a price of 332 million yuan. According to the 2021 annual report, Anta and Fiele account for a similar proportion (48.68% and 44.24%) of Anta Group's revenue of 49.328 billion yuan. In addition to Feile, Arc'teryx, an outdoor sports brand, Wilson, a ball game manufacturing brand and other brands have been taken under Anta in recent years.

In 2019, Tebu launched a multi brand and international development strategy, and successively acquired brands such as Saucony, Merrell and Palladium.

With regard to the acceleration of the acquisition of local sports brands in recent years, Li Yingtao said that in 2021, Li Ning's revenue will exceed 20 billion, Anta's revenue will approach 50 billion, and its revenue scale and profitability are not bad compared with international brands. In this case, for sports shoes and clothing brands, more consideration is given to multi brand matrix and further regional expansion. It is also in line with the current development stage of the brand to achieve regional expansion of the overseas market by acquiring overseas brands.

With the increasingly fierce competition, the acquisition of overseas brands seems to be becoming a "good medicine" for local sports brands to expand their local and overseas market shares.

Li Yingtao believes that overseas M&A is a relatively high success rate and efficiency way. Although the early capital cost of M&A is high, it can gain the advantage of time and efficiency.

He also said that in the international market, Nike, Adidas and other brands will have stronger competitiveness than Anta and Li Ning. If we rely on local brands to attack, it is actually more difficult. At the same time, we should also consider the localization problem in overseas markets. Through overseas mergers and acquisitions, to some extent, the problem of localization and local consumers' perception of brands has been solved.

But after successful overseas M&A, is the local sports brand a step towards internationalization? In Ma Gang's opinion, the answer is no. He believes that introducing foreign brands to expand the domestic market is not going to sea. Going to sea means selling Chinese goods to foreigners. Internationalization refers to "income internationalization", not "internationalization" when foreign brands are attached.

Li Yingtao believes that overseas mergers and acquisitions of local sports brands are also one of the routes for brands to go overseas, and also one of the steps for local brands to go overseas. After the completion of overseas M&A, the brand can gradually understand the operation system of the overseas market, accumulate local resources and talents, understand the characteristics of local localization, and then copy these experiences to the brand. Otherwise, local brands may encounter waterloo if they rush overseas. Therefore, overseas M&A is a necessary step before this.

On June 7, Peugeot China replied that for the acquisition of Clarks, there was no other information to disclose except for the official announcement.

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