Author丨Zhao Na
Editor丨Lin Kun
Source丨Xinhua News Agency
The other shoe will eventually drop.
On May 26 this year, Extraordinary China Holdings Limited (hereinafter referred to as “Extraordinary China”) announced a special shareholder meeting to vote on a resolution concerning the control of Clarks.
Extraordinary China is a footwear and apparel brand operator, led by the “Prince of Gymnastics” Li Ning.
For the older generation, Li Ning is the Prince of Gymnastics in China, having won six gold medals at the World Cup gymnastics competitions in the 1980s. For the younger generation, Li Ning represents the memory of Chinese sports brands, igniting their expectations for the national trend.
The turning point in fate is the British century-old footwear brand Clarks. While it remains niche in China, it is a national footwear brand in the UK. It is said that half of the British population received their first pair of shoes from Clarks.
This transaction marks another move by Extraordinary China to expand overseas. In November last year, Extraordinary China acquired the Italian luxury leather goods and apparel brand Amedeo Testoni.
“After completing the acquisition, our brand portfolio will be richer, meeting the needs of the golden consumer group in various fields such as sports leisure, street fashion, affordable luxury, and high-end luxury, while expanding our market share in Greater China and even overseas,” wrote Li Ning, Chairman and CEO of Extraordinary China, in the 2021 annual report.
According to the plan, Extraordinary China will enhance the sales of Clarks products through popular marketing tools and by opening stores on popular online sales platforms.
Additionally, support will also be reflected in the synergy between Clarks and Extraordinary China’s multi-brand footwear and apparel business in marketing, supply chain solutions, and distribution channels, which is expected to further expand Extraordinary China’s global market footprint.
Image / (Extraordinary China’s organizational structure Source: Extraordinary China official website)
The Chinese Buyer of the British National Shoe
The story of Clarks began in Somerset, England, the legendary birthplace of King Arthur and the knights of the Round Table in medieval Europe.
In 1825, brothers Cyrus Clark and James Clark made a pair of handmade sheepskin slippers from leftover scraps from blanket manufacturing, officially starting the brand history of Clarks.
After several generations of management, C&J Clark (hereinafter referred to as “Clark”, the company behind Clarks) has become a world-class footwear manufacturer and retailer, with half of the British population receiving their first pair of shoes from Clarks. Until the early 1990s, the management rights of Clark remained with the Clark family. Even after transferring management rights to external professional managers, the Clark family still held the majority of shares in the company.
However, starting in 2014, the financial situation of this British national footwear company began to decline, with profits decreasing year by year and entering a loss situation. By 2019, Clark’s net loss had expanded to £82.9 million. The spread of the COVID-19 pandemic prompted the Clark family to decide to relinquish control.
Victor Herrero, a non-executive director of Extraordinary China, informed his partner in the East, LionRock Capital, of the opportunity he had learned about.
It is worth mentioning Herrero’s background. Simply put, he has extensive experience in the management and operation of consumer goods companies. Not only that, he understands Asia and is familiar with China.
According to reports from the 21st Century Economic Report, Herrero served as CEO of Guess Inc. from 2015 to 2019 and previously held positions as the Asia-Pacific Director and General Manager for Greater China at Inditex Group. In July 2020, he became a non-executive director and chairman of the board of BOSSINI International Holdings Limited.
LionRock Capital quickly made a bidding decision, and the Clark family accepted the olive branch. They believed that this investment from the East would help the Clarks brand develop globally, especially in China and the entire Asia-Pacific region.
“Many global brands want to enter China and develop the Chinese market but cannot find entry opportunities,” a PE investor told reporters. The expanding middle class in China has created a huge domestic consumer market. With Chinese investment institutions and industrial capital as guides, these companies’ products and services will be able to truly reach China.
When the transaction details were disclosed, the public noticed Li Ning’s presence.
In the press release from LionRock Capital regarding the transaction, Li Ning appeared as a non-executive chairman. He stated, “Clarks is one of the most well-known consumer brands globally, and we look forward to collaborating with the founding family to continue providing excellent products and services to consumers.”
Regarding the timeline of communication between LionRock and Clark, Extraordinary China provided detailed disclosures in its first-quarter report this year: Around August 2020, Herrero introduced the opportunity to acquire a stake in Clark to LionRock Capital; around September, LionRock Capital communicated the possibility of Extraordinary China’s consumer goods (Note: Extraordinary China is a wholly-owned subsidiary) providing a loan to LionRock Capital Partners Qile L.P. (hereinafter referred to as “LionRock Capital Partners Fund”) for investment; by the end of September, Extraordinary China’s consumer goods signed a loan agreement with LionRock Capital Partners Fund, which was granted financing of up to £54 million to fund several investments.
The LionRock Capital Partners Fund is an investment fund managed by LionRock Capital, with Li Ning’s company as a limited partner, contributing a total of approximately 20.09%. Herrero and BOSSINI’s non-executive director Li Guoming account for about 5% of the fund’s contributions.
Ultimately, in November 2020, LionRock Capital announced the acquisition of a majority stake in the well-known British century-old footwear brand Clarks. After the transaction, the Clark family will still retain a minority stake.
The Consumer Goods Ark from the East
If Li Ning’s company is the sports aircraft carrier built by Li Ning as an entrepreneur, then Extraordinary China is the consumer goods ark built by this Olympic champion.
Founded in 2009 and headquartered in Hong Kong, Extraordinary China spent its first decade primarily focusing on sports talent management, organizing sports events, sponsorship, and other sports-related investment collaborations.
Until 2019, Li Ning stated in an interview, “Now that Li Ning’s business is basically on the right track, the efficiency and capabilities of the team can find their place, so I will have more time to start developing my business at Extraordinary China.”
Looking back from this point in time, in 2010, Li Ning’s company was nearing a revenue of 10 billion, but then entered a prolonged downturn. Extraordinary China acquired approximately 25.23% equity in Li Ning Company in 2013, with most of the company’s resources focused on the transformation of Li Ning Company.
From 2019 onwards, the mission of Extraordinary China shifted from being a supply ship for Li Ning Company to becoming an ark sailing towards the global consumer goods market.
Extraordinary China’s first decade was not without external investment and acquisition actions, with a portfolio of investments including Li Ning Company, Hongshuangxi Group, Snake Esports Club, and All-Star Skating Club.
Extraordinary China stated in its announcement that the core business of the group is operating a multi-brand footwear and apparel business while also managing sports experiences. The term “sports experience” includes the operation, service, and investment of sports destinations, sports events, and esports clubs.
At the end of 2019, Extraordinary China launched its sports and lifestyle consumer goods business to seize opportunities in the Chinese market for sports-related consumer goods.
In July 2020, Extraordinary China completed the acquisition of a controlling stake in BOSSINI, which primarily engages in the retail and distribution of casual apparel; in addition to acquiring BOSSINI Group, Extraordinary China also launched a new series of clothing and footwear under the LNG brand; in January 2022, it completed the acquisition of Sitoy AT Holdings Company Limited, which holds the century-old luxury brand Amedeo Testoni and its derivative line i29.
Through the acquisition of Sitoy AT Holdings Company Limited, Extraordinary China added high-end luxury brands to its asset portfolio and expanded its multi-brand footwear and apparel consumer goods network to Europe, Japan, and South Korea, increasing its existing business scale.
With the addition of Clarks, Extraordinary China’s global footprint will further expand, creating synergies with its other footwear and apparel brands.
From Clark’s business development perspective, on one hand, as the global retail market recovers post-pandemic, its business performance is expected to improve. On the other hand, Clark can achieve new growth by entering the Asian market and increasing the utilization of online platforms.
Additionally, there is one more point worth noting about Extraordinary China. In the first quarter of 2022, the group officially launched its self-operated e-commerce department to provide brands with e-commerce and live-streaming services.
A consumer sector investor told the 21st Century Economic Report that online data can reflect real consumer preferences. Despite the impact of the COVID-19 pandemic, consumer brands may hold a cautious attitude towards opening stores, but the “online + offline” omnichannel construction presents opportunities for brands.
Creating a PE Cooperation Model
In the transaction with Clark, Extraordinary China left the market with a question: why was the transaction conducted through cooperation with a PE institution rather than a direct acquisition? After all, Extraordinary China has already acquired BOSSINI and Amedeo Testoni.
Extraordinary Group explained that this arrangement allows the company more time and flexibility to consider the opportunity and investment structure.
“The group believes that this loan provides a good opportunity for the group to establish a business relationship with the general partner while also reviewing LionRock’s investment and seeking participation when suitable opportunities arise for the group,” Extraordinary China stated in its documents.
From another perspective, Li Ning’s collaboration with LionRock Capital to acquire Clark is a continuation of the story of Chinese companies acquiring overseas, and it also creates a new model of cooperation between entrepreneurs and PE institutions.
Reporters from the 21st Century Economic Report reviewed multiple regulatory documents and found that Li Ning himself and his company have multiple collaborations with LionRock Capital. These include jointly establishing a PE fund, collaborating to acquire Clark, and jointly initiating a SPAC.
LionRock Capital is a private equity investment institution headquartered in Hong Kong, known for its investment in the top European football club Inter Milan in the sports sector. In addition to Clarks, its representative projects in the consumer and TMT sectors include Didi Chuxing and Chengxin Youxuan.
In the broader global market, LionRock Capital has also invested in the European ride-hailing app Hailo and the Southeast Asian super app GoTo (Note: formed by the merger of Gojek and Tokopedia).
The relationship between LionRock Capital and Li Ning’s company is that of fund manager and fund investor. The investment strategy of the funds they collaborate on focuses on leading profitable, growth-oriented companies in the consumer goods or sports sectors, with a focus on cross-border transactions between China and other major markets.
In the acquisition transaction of Clark, it was Herrero who introduced the investment opportunity, and LionRock Capital conducted the acquisition through the LionRock Capital Partners Fund, with Extraordinary China indirectly holding the Clarks brand by subscribing to the equity of the LionRock Capital Partners Fund.
In addition to the aforementioned two collaborations, Li Ning and LionRock Capital’s cooperation in the consumer goods investment sector continues.
On the last day of January 2022, Li Ning, LionRock Capital, and another private equity investment institution, Astrapto Capital, jointly initiated Trinity Acquisition to apply for a SPAC listing on the main board of the Hong Kong Stock Exchange.
This special purpose acquisition company plans to focus on global lifestyle companies with strong growth potential in China.
As a financing method that has attracted attention in recent years, the SPAC listing process is simpler, takes less time, costs less, and has more certainty in pricing compared to traditional IPOs. However, on the other hand, whether the experience and reputation of the SPAC sponsors are recognized is key to the success of the SPAC.
According to the Hong Kong Stock Exchange regulations, SPACs must announce a SPAC acquisition transaction within 24 months and complete the SPAC acquisition transaction within 36 months.
It seems that Li Ning’s acquisition journey will continue.
This issue was edited by Liu Xueying, Intern Zhan Huinan
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