Good opportunities and smart strategies have helped conglomerate Fosun seize overseas deals

Liang Xinjun, chief executive officer of Chinese private conglomerate Fosun Group, has become fitter than he was a year ago after having lost more than 5 kilograms and paying more attention to his health.

"We have gained good investment returns in the past 20 years, but, compared with Warren Buffett's nearly 50 years of good results, we are still far behind," says Liang. "Keeping fit is essential for investment."

In the past 20 years, Fosun Group has invested in more than 70 deals, and its annual investment return rate was about 30 percent.

Fosun regards Berkshire Hathaway as a learning model and follows a similar pattern, being an investment group with a core business based on insurance.

"We found three types of opportunities. One is grafting the world's excellent resources with China's strong engine, so we take a good look at deals related to consumption upgrading and services," says Liang, adding there is also potential to help Chinese companies listed abroad to become private and leading companies to integrate their industries.

Fosun has seized the first type of opportunity well. In the first half of this year, Fosun invested in three foreign companies: US high-end women's knitwear producer St John Knits International Inc with $55 million for 33.3 percent stake, Israel-based cosmetic laser solutions and medical lasers provider Alma Lasers Ltd with $221.6 million for a 95 percent stake, as well as a $22.5 million investment in US-based Saladax Biomedical Inc, which focuses on tumor diagnosis, Fosun became its largest shareholder.

The three big moves were made after their first two successful investments in French resort operator Club Mediterranean SA in 2010 at a cost of 44 million euros ($58.9 million), and Greece-based high-end retailer Folli Follie Group SA in 2011 with an initial investment of 84.58 million euros.

"When going abroad to do some M&As, we look for industries in which the Chinese market share will occupy 20 to 30 percent of the global entity in the coming five to 10 years, such as the luxury industry, and then we choose the No 1 or No 2 company in these industries," says Liang.

Fosun would become their first or second-largest shareholder and then help these companies improve their business performances in China.

Limited number of deals

As an investment conglomerate, Liang says Fosun chooses a limited number of major deals to invest in so that they can decrease the time of decision-making and control risks.

St John is the largest women's knitwear producer in North America, and its clothing technology is unique in that its garments do not wrinkle. The garments especially appeal to executive women - women in positions of authority.

Fosun's US team had been in contact with St John since 2009 and the senior executives participated in the deal in 2012. Liang visited St John's stores and factories in Houston, Los Angeles and New York. And then Fosun Group Chairman Guo Guangchang and President Wang Qunbin also visited the company.

"We are very cautious about decision-making because we seek a success rate. We have an investment decision committee made up of seven people and most of them should be present," he says.

The Chinese market contributed to less than 1 percent of St John's annual sales, but the average proportion in China should be 29 percent by Liang's calculation.

"We are capable of helping it develop in China."

Liang says such measures include opening stores quickly and popularizing St John's brand in China. Fosun is negotiating with Intime Group and Beijing Enterprises Group Co Ltd to open stores.

Fosun helped Folli Follie open 76 stores within two years, while the Greek company in the previous eight years only opened the same number of stores.

Fosun also found a Chinese partner, Eve Group, for bringing in St John. In the coming three months, they will consider the pricing strategy as well as a system for running St John in China.

In the United States, the price of every suit is about $1,500. That in current Chinese stores is between 15,000 ($2,450) and 20,000 yuan.

The Chinese high-end clothing market is at an early stage of its development. Its growth rate in recent years was between 20 percent and 30 percent, much higher than that of the overall Chinese clothing market. The annual compound growth of the high-end clothing market will be 33 percent in the next three years, according to a report by Minsheng Securities Co.

Chanel, Dior, Burberry, Prada, Giorgio Armani and a few local brands such as Ne Tiger dominate the Chinese super high-end clothing market. Popular high-end brands in China include local brands Ports, Lancy and Marisfrolg.

During the upgrading of consumption, local high-end clothing companies have seized on an empty marketplace and developed fast. While foreign super high-end companies target the super rich and powerful, local high-end ones focus on the Chinese elite aged 25 to 45, who seek big brands at acceptable prices.

The Chinese high-end clothing market is still fragmented so companies with strong design and operational capabilities will stand out, said the report.

Fosun Group purchased the 95 percent stake in Israel-based Alma Lasers Ltd in May.

Alma Lasers manufactures laser, light-based, radio frequency and ultrasound products with integrated product portfolios for aesthetic and medical applications.

Fosun Chairman Guo and President Wang visited Israel-based Alma Lasers when there was a terrorist attack in that region. They visited Alma's co-founder Dr Ziv Karni, who is a scientist with a lifelong interest in studying wavelengths.

Alma Lasers has a 15 percent share of the global market for high-end aesthetic devices with annual revenues of nearly $100 million.

Liang says spending on aesthetics in the European market has been cut a lot since the financial crisis, but the demand is very high in China.

"We believe the Chinese market share will take up more than 22 percent of Alma's global revenue," he says.

"We have a strong distribution capacity in China to help Alma."

Fosun invested in Hong Kong-listed Sinopharm Group Co Ltd in 2006 and became its second-largest shareholder. The company is the main supplier to 70 percent of hospitals in China.

Fosun also reached a strategic cooperation deal with Chindex International Inc, a leading independent US provider of Western healthcare products and services in China in 2010.

General hospitals, special hospitals and beauty shops with medical qualifications will be Alma's target distribution areas when it enters the Chinese market. Household products will also be targeted.

Liang says they also showed confidence in Alma's leading position in the world and strong innovation capabilities.

The third investment by Fosun in the first half of the year was investing in US-based Saladax Biomedical, which develops and commercializes novel diagnostic trials for the practical delivery of personalized medicine.

The proprietary line of MyCare trials improves the efficacy of existing drugs through optimized dosage.

Saladax's initial focus is oncology, with a portfolio of 13 chemotherapy drug dose management trials in various stages of development.

Liang says in this way, patients can avoid using unnecessary medicine and their pain can be largely reduced. Furthermore, medical fees can be cut.

"We feel confident in explaining the technology and application of Saladax to the Chinese government and winning its support," says Liang, adding that the application will be introduced to both private and public hospitals in China.

More on target

"In the second half of this year, wealth management and luxury goods will be Fosun's focus," says Liang.

Liang says although cultural differences can be a challenge when seeking investment opportunities around the world, they have discovered ways to overcome it.

"Fosun seeks to be a kind shareholder in that we do not want to win control of the companies," he says.

"For management teams, we make them enjoy the benefits from the companies' development. We also care for local staff and guarantee their employment."

Alan Wang, a partner at international law firm Freshfields Bruckhaus Deringer based in Beijing and Shanghai, tells China Daily that when Chinese companies go abroad for a deal with bidders from other countries, a long period of waiting for receiving approvals from Chinese government authorities can be a real challenge to their success.

But Wang says some companies such as Fosun Group that have several successful stories show it can be smoother and quicker to get government approval while the Chinese government is also taking steps to simplify the outbound approval process.

Wang adds that Chinese enterprises should understand the local laws and market practice in deal negotiations and be prepared to follow them.

"For instance, although signing a memorandum of understanding does not mean reaching a formal contract, Chinese enterprises should still take the MOU negotiation seriously. Whatever has been agreed in the MOU should be respected so as to ensure contractual negotiations and that good long-term business relations are preserved," says Wang.

caixiao@chinadaily.com.cn

Fosun Group, the Chinese private conglomerate, has invested in more than 70 deals around the world in the past 20 years. Provided to China Daily

( China Daily European Weekly 11/29/2013 page22)