While major US private equity operators like the Carlyle Group, KKR and the Blackstone Group (BX) gear up to invest in emerging markets, there are already a variety of locally-based firms that are capitalizing on the opportunities. Take Transpac Industrial Holdings Limited, which is based in Singapore. The firm has been aggressive in areas like China/Hong Kong, Taiwan, Malaysia and so on.
In fact, this week Transpac was able to sell off a portfolio company, Foodstar, to H.J. Heinz (HNZ) for $165 million. The transaction also includes an extra payout if certain milestones are achieved (these were not disclosed).
Based in China, Foodstar is a top soy-sauce maker. In other words, the deal is a nice fit for Heinz as well as a platform to benefit from the strong growth in the country.
Spicing Things Up
Based in Guangzhou, Foodstar makes a variety of major brands like Master Weijixian (popular in southern China) and Guanghe fermented bean curd. However, as is typical with privately-held Chinese operations, there is scant information about the company. But the company does have four plants and has 2,500 employees.
As a sign of its growth ramp, the company is currently building a new plant in Shanghai. With the resources from Heinz, there is likely to be more development of the infrastructure as well as marketing.
And the opportunity is large enough to move the needle for Heinz. The soy-sauce market in China is roughly $2 billion and is growing at about 7% to 8% per year. And the product line from Foodstar has been growing at a more rapid clip. Interestingly enough, Heinz already has experience with the soy-sauce market in places like Indonesia with its ABC brand.
Yet, Heinz realizes that emerging markets require much time and effort to get traction. The company entered China in the 1980s with a factory in Guangzhou to sell an infant cereal.
With the Foodstar deal, Heinz expects to hit roughly $300 million in sales in the Chinese market. This is still a small amount in light of the company's $10.4 billion in annual sales.
But it's important to look at the whole emerging-market segment for Heinz. All in all, this amounts to roughly 15% of sales. What's more, the segment accounts for 30% of sales growth.
No doubt, Heinz's emerging-market strategy is critical to deal with the mature markets in the U.S. and Europe. And the good news for Heinz shareholders is that the company has been taking the key steps to benefit from lucrative opportunities.
Understanding Stock Market Indexes
What does it mean when people say "the market is up 2%"?View Course »