On January 23rd, Botanee Group Co., Ltd. (BTN), a Chinese cosmetics company, announced that it had reached an agreement with Yunchong Fund (referring to Xiamen Yunzhong Equity Investment Partnership (Limited Partnership)) and other partners to terminate the “Partnership Agreement” ahead of schedule, liquidate, and cancel Yunchong Fund. It is reported that Yunchong Fund obtained the “Private Equity Investment Fund Filing Certificate” on August 15th of the previous year, but there have been no investment activities so far. Therefore, it can be seen that Yunchong Fund was terminated in less than half a year after its establishment. Why did this happen?
Investing 300 million yuan ($41.83 million) and terminating early
According to the announcement released by BTN, Yunchong Fund was established through a joint initiative between BTN, as one of the limited partners, and Xiamen Chonglou Private Equity Fund Management Co. (Xiamen Chonglou), a professional investment company, with a total investment of 300 million yuan ($41.83 million) using their own funds. Xiamen Chonglou serves as the manager of Yunchong Fund.
It is worth mentioning that Xiamen Chonglou is a wholly-owned subsidiary of BTN. Based on the shareholding percentages of Yunchong Fund, BTN is the largest shareholder with a stake of 94.9367%, followed by Xu Yukun, an individual, with a stake of 4.4768%, and Xiamen Chonglou with a stake of 0.3165%. In other words, BTN, its subsidiary Xiamen Chonglou, and Xu Yukun jointly established Yunchong Fund.
BTN stated, “Due to objective factors such as changes in policy environment, the company did not carry out relevant investments primarily through Yunchong Fund. After comprehensive consideration of the company’s business development plan and in order to optimize resource allocation, improve capital utilization efficiency, and safeguard the interests of fund partners and investors, we reached an agreement with other partners of Yunchong Fund to terminate the ‘Partnership Agreement’ ahead of schedule and liquidate Yunchong Fund.”
Currently, all partners of Yunchong Fund have completed the settlement of debts, asset distribution, and liquidation matters in accordance with the relevant provisions of the “Partnership Agreement.” The operational status of Yunchong Fund updated on the website of the China Securities Investment Fund Association is now listed as “early liquidation.”
According to an announcement released by BTN on August 17, 2023, regarding the joint investment with a professional investment institution, the company stated that it decided to invest 300 million yuan ($41.83 million) in Yunchong Fund “to further enhance the company’s overall competitiveness and profitability and seize strategic cooperation opportunities.”
So why did BTN decide to terminate this investment fund before half a year had passed and without making any investments in projects? Was it to reduce investments?
In response to this, CHAILEEDO immediately contacted BTN for verification. Zhong Wei, Assistant to the Chairman and Director of Public Relations at BTN, responded, “Terminating Yunchong Fund is not to reduce investments, but rather the company’s decision to convert all investment projects into strategic investments and direct investments. Therefore, this year, the company will continue to use appropriate investment methods at the right time to help improve the horizontal and vertical layout of the company’s industrial ecosystem.”
BTN aims to accelerate its multi-brand strategy
From BTN’s response, it is evident that there will be significant changes in their investment strategy.
Since its successful listing in March 2020, BTN has been actively engaging in a series of investment activities. For instance, in June 2022, BTN led a tens of millions yuan Series A financing round for the emerging domestic beauty brand Funny Elves. In October of the same year, BTN, along with its wholly-owned subsidiary Hainan BTN, invested a total of 535.5 million yuan ($74.67 million) and increased capital in Yuejiang Investment (Guangzhou) Co., Ltd., acquiring a 51% stake.
Simultaneously, BTN has established investment funds with professional investment institutions several times to facilitate business expansion. For example, on June 30, 2022, BTN announced that it would invest 100 million yuan ($13.94 million) of its own funds in Hangzhou Shengheng Equity Investment Partnership, jointly established by Sheng Capital Equity Investment Management (Tianjin) Co., Ltd. as the manager and Hangzhou Shengheng Kunpeng Management Consulting Partnership Enterprise (Limited Partnership) as the general partner.
On March 14, 2023, BTN once again used 100 million yuan ($13.94 million) of its own funds to establish Nanjing Jianye Sanzheng Houdetou Investment Management Co., Ltd. as a limited partner, along with Nanjing Jianye Sanzheng Zhengxing Health Management Co., Ltd. and Hainan Sanzheng Shouzheng Health Management Co., Ltd., forming the Nanjing Jianye Sanzheng Zhengxing Equity Investment Partnership (Limited Partnership), also known as Sanzheng Fund. On October 10 of the same year, BTN, along with other companies and individuals, invested collectively and became partners with Tibet Jinyuan Investment Management Co., Ltd., Fugang Construction Group Co., Ltd., and Xingyin Wealth Management Co., Ltd. in establishing the Jiangsu Jingao New Materials Entrepreneurial Investment Partnership (Limited Partnership).
These series of investment actions were aimed at addressing concerns about BTN’s single business ceiling. It can be observed that BTN achieved rapid growth from 2019 to 2021, but the revenue growth rate started to slow down in 2022. BTN has also incubated some proprietary brands internally, but in terms of revenue contribution, the VinoNa brand still accounted for over 95% in 2022 and 2023.
By establishing a multi-brand matrix, the company’s development becomes more robust. In fact, BTN recognized the importance of this strategy even before going public. Therefore, BTN established the Strategic Investment Department as early as 2018 with the goal of acquiring multiple brands. Clearly, external expansion through mergers and acquisitions became one of the ways to overcome BTN’s single business ceiling. BTN has repeatedly mentioned following the principles of “internal cultivation and external acquisition.”
Despite terminating Yunchong Fund ahead of schedule, as mentioned above, BTN still has several joint ventures with professional investment institutions under its umbrella. Regarding this, Zhong Wei stated, “For these joint venture enterprises, BTN will only act as a limited partner (LP), involving only investment dividends and returns, without participating in specific company management.”
As for the main direction of future investments, Zhong Wei further stated, “BTN’s future investment areas will closely align with the company’s main business, focusing on related investments in the health and beauty sector. The beauty industry will be a key area of focus.” She added, “The acquisition of Yuejiang Investment in 2023 was also a strategic move to expand the group’s beauty brand line.”
Therefore, it is evident that in the future, BTN will continue to focus on investments in the beauty brand sector to expedite the realization of their multi-brand strategy.
Beauty and cosmetics listed companies are all “investors”
Although BTN’s investment strategy has changed, it can be seen that its determination to improve the horizontal and vertical layout of the industrial ecosystem through investment remains. CHAILEEDO has noticed that the practice of accelerating investment immediately after going public is almost a common choice for all beauty and cosmetics listed companies.
It can be seen that since 2018, nearly 10 companies, including Yatsen, Golong, Proya, S’Young, and Marubi, have invested/acquired domestic and foreign beauty brands and companies.
For example, just in mid-January, both Porlier and Huan-ya Group made new external investments. The former invested 1 million yuan ($13,940) in Ningbo Jingzhe Cosmetics Co., Ltd. (referred to as “Ningbo Jingzhe Company”) with a 100% stake, while the latter established a wholly-owned subsidiary, Guangzhou Moren Zhishou Health Technology Co., Ltd. (referred to as “Guangzhou Moren Zhishou Company”), with an investment of 3 million yuan ($418,300).
According to public information from Qichacha, Ningbo Jingzhe Company was established on January 18 of this year, and its business scope mainly includes cosmetics wholesale, cosmetics retail, daily necessities sales, household goods sales, sales of Class I medical devices, etc. Guangzhou Moren Zhishou Company was established on the 15th of the same month, and its business scope also includes sales of daily sundries, home appliances, personal hygiene products, internet sales (excluding licensed products), cosmetics wholesale, cosmetics retail, etc.
In addition to establishing wholly-owned subsidiaries, many Chinese domestic beauty companies have also started to “extend” externally after going public. The methods include joint ventures with other companies and taking stakes in other companies. At the same time, major cosmetic listed companies have also set up their own investment funds to facilitate better investment operations.
Meanwhile, according to incomplete statistics from CHAILEEDO, as of now, 7 companies, including Proya, Bloomage Biotech, BTN, have established a total of 16 investment funds, with a total size exceeding 200 million yuan ($27.89 million). Moreover, many of these companies have established two or more investment funds.
Although beauty and cosmetics investments have cooled down compared to the previous two years, overall, the beauty industry remains a hot investment field, and investment funds have become standard for listed beauty companies. The latter constantly expands their horizons through investment funds, direct investments, and strategic investments.
In conclusion, when beauty companies gradually enter the capital market, they are all striving to become “investors.” They are not limited to the vertical expansion of their own enterprises but extend their “tentacles” further by investing, taking stakes in other enterprises, and expanding the boundaries of their business. Only through such efforts can China’s “L’Oréal” emerge sooner.
