Brand Reshuffling Fuels VC Activity in China
A reshuffling of lifestyle-driven brands will drive dealmaking in 2024.
With worldwide dealmaking volume reaching a decade low in 2023 — according to Statista data — global M&A activity is expected to pick up the pace again in 2024, albeit with a subdued appetite.
In line with key global markets, in 2023, China‘s deal volume declined 15.3 percent compared to the same period last year, according to GlobalData, but the drop was relatively lower compared to its peers, including the U.S., the U.K. and India, which dropped 42 percent, 26.9 percent, and 38.4 percent, respectively.
In the near future, China remains a top APAC market for VC funding activity aside from the U.S. in terms of deal volume and value, according to GlobalData’s analysis.
In the first 11 months of 2023, China accounted for 16.1 percent of global VC deals, with funding value at 17.9 percent of international deals.
Yet for some investors, restrictions on capital flow, slower-than-expected economic recovery, high U.S. interest rates, Chinese equities’ sluggish performance on the U.S. stock exchange, and geopolitical trade barriers are also dampening investor interest in China.
“Investors are still busy offloading projects that took a blow after the collapse of the consumer goods valuation bubble in 2020 and 2021,” said a former BCG consultant, who requested anonymity, pointing to well-known retail labels such as beauty retailer Harmay and beauty label Perfect Diary as overpriced deals that sobered the market up.
However, Chinese consumers’ appetite for newness will still drive dealmaking in 2024.
Adrian Cheng’s recent investment in 1017 Alyx 9SM, Anta’s acquisition of Chinese sportswear brand Maia Active, luxury e-commerce platform Senser’s investment from Xiaohongshu, L’Oréal’s investment in Chinese supply chain operations, and Estée Lauder Cos.‘ Code Mint and Melt Season deals in China are examples of how investors are staking a claim in the country’s consumption-driven economy revival.
Cheng, who heads the family business empire as chief executive officer of New World Development and founder of K11 Group, said his recent investment in Alyx, which was made via a new private vehicle that he described as a “lifestyle platform” spanning from fashion to entertainment, will help the brand accelerate its development, hire more staff and expand its accessories, footwear, and jewelry offerings in particular.
His plan for the new private vehicle is to “strategically invest in cutting-edge designers and companies who are redefining the boundaries of fashion” and ones that “cross-pollinate fashion with art and music, community, and culture as well.”
It means brands under Cheng’s ownership could form a synergy with his K11 art mall retail concept, which is expanding swiftly across major Chinese cities. A major landmark project to be unveiled in 2024 will be K11 Ecoast in Shenzhen, a vast waterfront complex that will incorporate a mall, multipurpose art space, office building, and promenade.
For Angelica Cheung, founding editor of Vogue China-turned-venture partner at HongShan, formerly known as Sequoia China, investing in China is the same as everywhere else. “Therefore, to me, fashion investment has always been an international approach,” said Cheung.