Business diversification: Tobacco firm to acquire China condiment maker for US$694.5m
The deal is set to take place at a base purchase price of US$694.5m. Huabao will own 73.6% stake in Jiahao after the acquisition.
Huabao said that it is acquiring the condiment maker to diversify its portfolios.
“The group will hold on to the strategy of concentric diversification based on consumer demand in the taste-based fast-moving consumer product industry,” Huabao said in its acquisition filing to the Hong Kong stock exchange.
An expected growth in the condiment industry is another reason for acquiring Jiahao.
“The condiment market is expected to see an acceleration in ‘consumption upgrades’ to higher-end condiment products,” it said.
Huabao also believes that it could better understand local tastes through the acquisition, in turn, allowing them to develop more complex food products to suit local preferences.
Huabao has previously ventured into the food industry by providing food flavours for a range of products, including dairy, beverages, candies and snacks. Its food flavouring subsidiary companies include Shanghai H&K Flavours & Fragrances and Guangzhou Huabao Food.
Competition
Earlier on, Hormel Foods Corp, the maker of Skippy peanut butter, Chinese buyout firm Citic Capital, and Hony Capital, were said to have expressed interest in acquiring Jiahao, Bloomberg reported.
Jiahao was previously a family-owned business, but was acquired by a Unitas Capital, a private equity led consortium.
It is led by Chairman Chen Zhixiong, known as “the Father of Chinese Mustard.”
Over the years, it has evolved to become a pre-eminent supplier of condiment products to more than 200,000 restaurants across China.
Besides making wasabi paste, it also produces concentrated fruit juice, chicken bouillon and functional soy sauce. Some of its main brands include “Jingba”, “Jiahao” and “Zhanwang”, with a manufacturing facility based in Zhongshan, China.
Market performance
Produce premiumisation and rapid growth in compound seasonings are factors driving steady volume and value growth of sauces, dressings and condiments in China, according to a Euromonitor report published in May this year.
High-end traditional simplex seasonings, such as soy sauces and vinegar, are witnessing a higher growth, due to increased health consciousness.
For instance, Lee Kum Kee’s seasoned soy sauce for seafood is the star product in the category with certain functionality. Shinho’s premium soy sauce is also a popular, as it emphasises umami and non-transgenic soy beans as its ingredients.
Foshan Haitian Flavouring & Food had the best performance last year, due to its nationwide distribution network and extensive product portfolio.
