Private-equity firm Longreach said on Saturday it has acquired jewellery chain Primo Japan from peer Baring Private Equity Asia and plans to help it expand in mainland China.
Longreach paid about ¥20 billion ($170 million) for Primo Japan including debt, of which about ¥10 billion was equity, according to an industry source.
Founded in 1999, Primo makes and sells engagement and wedding rings to middle-class customers. Its rings are typically priced about $3,000 to $5,000 each.
The company makes about 90% of its sales in Japan and has been grappling with an aging population in Japan and more women choosing to remain single for longer, according to its website. Also, Primo Japan has noted in its earnings updates that couples tend not to feel a ring is an essential part of a proposal anymore.
Longreach, a specialist in supporting Japanese companies' expansion into North Asia, plans to help Primo Japan grow in Greater China. Primo Japan plans to take part in bridal fairs in other parts of Asia and also open a store in Shanghai.
Primo Japan already runs a network of 76 stores in Japan, 10 stores in Taiwan and two in Hong Kong. Longreach and management are planning to open more stores in Japan and stores in Greater China every year.
The Japanese and Taiwanese stores are profitable and very cash generative so will be able to fund an accelerated expansion in mainland China. Primo Japan’s sales were ¥15.76 billion in the fiscal year ended September 2014, up from ¥13.76 billion a year earlier. In Japan and Taiwan the business’s ebitda margin remains high at around 17%.
Longreach paid about eight times trailing earnings before interest, tax, depreciation and amortisation (Ebitda) for the firm, which appears a fair price considering similar Japanese firms’ valuations, however Hong Kong based jewellers are valued more highly by investors.
Primo Japan is also likely to be sheltered from pressure on other mainland Chinese jewellers as President Xi Jinping’s government cracks down on luxury gifts for favours within the business community, as Primo Japan is focused on bridal jewellery.
Mizuho led the financing of the deal which comprised senior loans, according to banking sources.
