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Carlyle invests in Chinese infant formula company

With the second investment from Carlyle Asia Partners III - which has so far garnered $2.1 billion in commitments - the firm has become the latest buyout group to target China's dairy sector.

The Carlyle Group has acquired a stake of 17.3 percent in Guangdong Yashili Group, an infant formula manufacturer based in China. The financial details of the transaction were not disclosed.

The investment was made from Carlyle Asia Partners III and gives Carlyle two seats on the board of Yashili, a spokeswoman for the firm said. The global firm’s Asian buyout group has raised $2.1 billion to date for Carlyle Asia Partners III, according to a source familiar with the fundraising. A target for the fund has not been disclosed.

Yashili, established in 1983, is headquartered in South China’s Guangdong Province. The company engages in the production of milk powder, cereal, soy milk and rice powder. It has more than 3,000 employees and operates 15 production lines. 

“The infant formula market in China is undergoing a positive transformation and is set to continue its strong growth trend,” Patrick Siewert, senior director of Carlyle Asia Partners, said in a statement.

China's infant formula industry has grown at an average of almost 30 percent per annum in recent years, Carlyle said, citing data from the China Dairy Association. This growth is driven by the increasing affluence of Chinese families, urbanisation and a demand for higher quality products.

The increasing emphasis on health and safety is an important driver for the industry’s development as well, Carlyle said. As part of the investment agreement, Carlyle will bring in a chief quality officer to assume supervision and oversee the implementation of a product quality control system.

China’s dairy sector has seen a spate of investments by private equity firms in recent months. In August, Sequoia Capital China invested $63 million for stake of about 8.7 percent in New York Stock Exchange-listed American Dairy. American Dairy operates in China through its subsidiary, FeiHe Dairy.

In July, Hopu Investment Management and state-backed enterprise COFCO reportedly invested about $800 million in China Mengniu Dairy Company for a combined stake of 20 percent.

Kohlberg Kravis Roberts (KKR) completed “a series of investments” in Ma Anshan Modern Farming, a dairy farming company, in June. KKR had invested $99.2 million in Ma Anshan for a minority stake in December 2008. 

This is the second investment from Carlyle Asia Partners III, the spokeswoman said. The fund's first investment was an $87 million investment in Sinorgchem in July 2008. Sinorgchem is a Chinese manufacturer of para-phenylenediames, a chemical additive used in the production of rubber products.

Carlyle closed its second Asian buyout fund on $1.8 billion in 2006. Its first buyout fund for the region, which closed in 1999, raised $750 million.

Carlyle’s Asian buyout group makes large control and strategic minority interests throughout Asia ex-Japan, primarily in Australia, Greater China, India, Korea and Southeast Asia. It typically looks at investments in the range of $100 million to $200 million per deal.