CASE STUDY - The Carlyle Group
CASE STUDY - The Carlyle Group
CASE STUDY - The Carlyle Group
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GLOBAL ALTERNATIVE ASSET MANAGEMENT<br />
<strong>CASE</strong> <strong>STUDY</strong><br />
How <strong>Carlyle</strong> Creates Value<br />
Deep industry expertise. Global scale and presence. Extensive network of Operating Executives. And a wealth of<br />
investment portfolio data; we call it <strong>The</strong> <strong>Carlyle</strong> Edge. <strong>The</strong>se are the four pillars of <strong>Carlyle</strong>’s value creation<br />
model. By leveraging these core capabilities and resources—<strong>Carlyle</strong> has established a 26-year overall<br />
track record of investing in companies, working to make them better and serving our investors’ needs.<br />
Beginning in 2007, <strong>Carlyle</strong> professionals have worked with Xtep management<br />
to transform the company from a traditional, family-owned<br />
fashion sportswear business into an international public company.<br />
AT A GLANCE<br />
Xtep (China) Company Limited<br />
Industry: Consumer & Retail<br />
Region/Country: China<br />
Fund: <strong>Carlyle</strong> Asia Growth Partners III, L.P.<br />
Acquired: June 2007<br />
Status: Current<br />
About Xtep and the Transaction<br />
<strong>Carlyle</strong> Asia Growth Partners III, L.P. made an initial investment in Xtep in June<br />
2007. In 2008, Xtep launched an initial public offering on the Main Board of the<br />
Stock Exchange of Hong Kong. After the IPO, <strong>Carlyle</strong> made follow-on investments<br />
in 2008, demonstrating our confidence in the company.<br />
Founded in 1999 and headquartered in Quanzhou, in Fujian Province, Xtep is<br />
one of the largest fashion sportswear companies in China. Under the proprietary<br />
brands of Xtep and Koling, as well as under a licensed brand, Disney Sports, the<br />
company designs, manufactures and markets sporting goods, including footwear,<br />
apparel and accessories, across the country. As of December 31, 2009,<br />
Xtep had more than 6,500 franchise retail outlets throughout China and approximately<br />
7,400 employees.<br />
Key Value Creation Metrics<br />
• Worked with management to smoothly transform Xtep from a traditional,<br />
family-owned business into an international public company.<br />
• Introduced various business development and brand building opportunities<br />
to Xtep, including generating positive media coverage and creating brand<br />
awareness in the international financial community.<br />
• Achieved outstanding financial performance and robust growth: Between<br />
2007 and 2009, revenues and profits grew by 160% and 192%, respectively.<br />
• Helped Xtep execute a successful IPO in June 2008 to raise capital to fund<br />
its further growth, resulting in a 40% increase in franchise outlets and a<br />
24% increase in employee headcount.<br />
THE CARLYLE GROUP<br />
1001 PENNSYLVANIA AVENUE, NW<br />
WASHINGTON, DC 20004-2505<br />
202-729-5626<br />
WWW.CARLYLE.COM
$285 million<br />
In June 2008, Xtep executed<br />
a successful IPO on the Hong<br />
Kong Stock Exchange, raising<br />
$285 million of new capital.<br />
<strong>The</strong> funds helped bolster the<br />
company’s growth, enabling<br />
Xtep to expand its franchise<br />
outlets by 40%.<br />
ABOUT THE CARLYLE GROUP<br />
<strong>The</strong> <strong>Carlyle</strong> <strong>Group</strong> (NASDAQ: CG) is a global<br />
alternative asset manager with $185 billion of<br />
assets under management across 122 funds<br />
and 81 fund of funds vehicles as of September<br />
30, 2013. <strong>Carlyle</strong>’s purpose is to invest wisely<br />
and create value on behalf of its investors,<br />
many of whom are public pensions. <strong>Carlyle</strong><br />
invests across four segments – Corporate<br />
Private Equity, Real Assets, Global Market<br />
Strategies and Solutions – in Africa, Asia,<br />
Australia, Europe, the Middle East, North<br />
America and South America. <strong>Carlyle</strong> has<br />
expertise in various industries, including:<br />
aerospace, defense & government services,<br />
consumer & retail, energy, financial services,<br />
healthcare, industrial, technology & business<br />
services, telecommunications & media and<br />
transportation. <strong>The</strong> <strong>Carlyle</strong> <strong>Group</strong> employs<br />
more than 1,450 people in 34 offices across<br />
six continents.<br />
<strong>Carlyle</strong> believes these selected case studies should be considered<br />
as a reflection of <strong>Carlyle</strong>’s investment process, and references to<br />
these particular portfolio companies should not be considered a<br />
recommendation of any particular security, investment, or portfolio<br />
company. <strong>The</strong> information provided about these portfolio<br />
companies is intended to be illustrative, and is not intended to<br />
be used as an indication of the current or future performance of<br />
<strong>Carlyle</strong>’s portfolio companies. <strong>The</strong> investments described in the<br />
selected case studies were not made by any single fund or other<br />
product and do not represent all of the investments purchased or<br />
sold by any fund or other product. <strong>The</strong> information provided in<br />
these case studies is for informational purposes only and may not<br />
be relied on in any manner as advice or as an offer to sell or a solicitation<br />
of an offer to buy interests in any fund or other product<br />
sponsored or managed by <strong>Carlyle</strong> or its affiliates. Any such offer<br />
or solicitation shall only be made pursuant to a final confidential<br />
private placement memorandum, which will be furnished to qualified<br />
investors on a confidential basis at their request.<br />
Transforming Xtep into an International Public Company<br />
<strong>Carlyle</strong> professionals worked closely with Xtep’s management to transition the<br />
company from a traditional, family-owned business into a publicly traded company.<br />
As part of this transformation, Xtep enhanced its corporate governance<br />
processes and improved its management team. <strong>Carlyle</strong> helped Xtep assess its<br />
internal management needs and identify qualified candidates. Before Xtep’s public<br />
listing, <strong>Carlyle</strong> worked with the company to develop and implement a sophisticated<br />
corporate restructuring plan, enabling Xtep to comply with international<br />
listing requirements.<br />
With <strong>Carlyle</strong>’s assistance, Xtep targeted new business development opportunities<br />
and enhanced its corporate brand among Chinese consumers and the global<br />
financial community. For example, in May 2009, Forbes Asia published an in-depth<br />
article, “Xtep Forward,” about how the company had developed and targeted<br />
second-tier cities for a new round of growth.<br />
Successful IPO<br />
With <strong>Carlyle</strong>’s support, Xtep successfully executed an IPO on the Hong Kong Stock<br />
Exchange in June 2008. In challenging financial market conditions, Xtep’s IPO<br />
raised approximately $285 million of new capital. <strong>Carlyle</strong> advised Xtep during the<br />
underwriting process and worked with the company to select banking and legal<br />
representatives, to coordinate the various parties engaged in the process, and to<br />
resolve legal and financial issues that arose during the process. Xtep has used the<br />
IPO proceeds to enhance its distribution network, expand its apparel production<br />
facilities, support sales and marketing initiatives, and target acquisitions.<br />
Xtep’s Performance<br />
Since <strong>Carlyle</strong>’s investment in 2007, Xtep has achieved outstanding financial<br />
performance and robust growth. From 2007 to 2009, revenues and profits grew<br />
by 160% and 192%, respectively. In addition, the company’s profit margins have<br />
steadily expanded: Gross profit margin has increased from 32.5% in 2007 to<br />
39.1% in 2009; and net margin rose from 16.3% to 18.3% during the same period.<br />
Xtep has also increased the number of franchise retail outlets by 40%, from<br />
4,647 in 2007 to 6,533 in 2009, and the number of employees rose from 5,930 in<br />
2007 to 7,352 in 2009, a 24% increase.<br />
REVENUE<br />
(RMB in millions)<br />
1,364.9<br />
2,867.2<br />
3,545.3<br />
07 08 09<br />
GROSS PROFIT<br />
(RMB in millions)<br />
443.1<br />
1,064.3<br />
1,387.8<br />
07 08 09<br />
RETAIL OUTLETS<br />
4,647<br />
5,532<br />
6,533<br />
07 08 09