CASE STUDY - The Carlyle Group

GLOBAL ALTERNATIVE ASSET MANAGEMENT
CASE STUDY
How Carlyle Creates Value
Deep industry expertise. Global scale and presence. Extensive network of Operating Executives. And a wealth of
investment portfolio data; we call it The Carlyle Edge. These are the four pillars of Carlyle’s value creation
model. By leveraging these core capabilities and resources—Carlyle has established a 26-year overall
track record of investing in companies, working to make them better and serving our investors’ needs.
Beginning in 2007, Carlyle professionals have worked with Xtep management
to transform the company from a traditional, family-owned
fashion sportswear business into an international public company.
AT A GLANCE
Xtep (China) Company Limited
Industry: Consumer & Retail
Region/Country: China
Fund: Carlyle Asia Growth Partners III, L.P.
Acquired: June 2007
Status: Current
About Xtep and the Transaction
Carlyle Asia Growth Partners III, L.P. made an initial investment in Xtep in June
2007. In 2008, Xtep launched an initial public offering on the Main Board of the
Stock Exchange of Hong Kong. After the IPO, Carlyle made follow-on investments
in 2008, demonstrating our confidence in the company.
Founded in 1999 and headquartered in Quanzhou, in Fujian Province, Xtep is
one of the largest fashion sportswear companies in China. Under the proprietary
brands of Xtep and Koling, as well as under a licensed brand, Disney Sports, the
company designs, manufactures and markets sporting goods, including footwear,
apparel and accessories, across the country. As of December 31, 2009,
Xtep had more than 6,500 franchise retail outlets throughout China and approximately
7,400 employees.
Key Value Creation Metrics
• Worked with management to smoothly transform Xtep from a traditional,
family-owned business into an international public company.
• Introduced various business development and brand building opportunities
to Xtep, including generating positive media coverage and creating brand
awareness in the international financial community.
• Achieved outstanding financial performance and robust growth: Between
2007 and 2009, revenues and profits grew by 160% and 192%, respectively.
• Helped Xtep execute a successful IPO in June 2008 to raise capital to fund
its further growth, resulting in a 40% increase in franchise outlets and a
24% increase in employee headcount.
THE CARLYLE GROUP
1001 PENNSYLVANIA AVENUE, NW
WASHINGTON, DC 20004-2505
202-729-5626
WWW.CARLYLE.COM

$285 million
In June 2008, Xtep executed
a successful IPO on the Hong
Kong Stock Exchange, raising
$285 million of new capital.
The funds helped bolster the
company’s growth, enabling
Xtep to expand its franchise
outlets by 40%.
ABOUT THE CARLYLE GROUP
The Carlyle Group (NASDAQ: CG) is a global
alternative asset manager with $185 billion of
assets under management across 122 funds
and 81 fund of funds vehicles as of September
30, 2013. Carlyle’s purpose is to invest wisely
and create value on behalf of its investors,
many of whom are public pensions. Carlyle
invests across four segments – Corporate
Private Equity, Real Assets, Global Market
Strategies and Solutions – in Africa, Asia,
Australia, Europe, the Middle East, North
America and South America. Carlyle has
expertise in various industries, including:
aerospace, defense & government services,
consumer & retail, energy, financial services,
healthcare, industrial, technology & business
services, telecommunications & media and
transportation. The Carlyle Group employs
more than 1,450 people in 34 offices across
six continents.
Carlyle believes these selected case studies should be considered
as a reflection of Carlyle’s investment process, and references to
these particular portfolio companies should not be considered a
recommendation of any particular security, investment, or portfolio
company. The information provided about these portfolio
companies is intended to be illustrative, and is not intended to
be used as an indication of the current or future performance of
Carlyle’s portfolio companies. The investments described in the
selected case studies were not made by any single fund or other
product and do not represent all of the investments purchased or
sold by any fund or other product. The information provided in
these case studies is for informational purposes only and may not
be relied on in any manner as advice or as an offer to sell or a solicitation
of an offer to buy interests in any fund or other product
sponsored or managed by Carlyle or its affiliates. Any such offer
or solicitation shall only be made pursuant to a final confidential
private placement memorandum, which will be furnished to qualified
investors on a confidential basis at their request.
Transforming Xtep into an International Public Company
Carlyle professionals worked closely with Xtep’s management to transition the
company from a traditional, family-owned business into a publicly traded company.
As part of this transformation, Xtep enhanced its corporate governance
processes and improved its management team. Carlyle helped Xtep assess its
internal management needs and identify qualified candidates. Before Xtep’s public
listing, Carlyle worked with the company to develop and implement a sophisticated
corporate restructuring plan, enabling Xtep to comply with international
listing requirements.
With Carlyle’s assistance, Xtep targeted new business development opportunities
and enhanced its corporate brand among Chinese consumers and the global
financial community. For example, in May 2009, Forbes Asia published an in-depth
article, “Xtep Forward,” about how the company had developed and targeted
second-tier cities for a new round of growth.
Successful IPO
With Carlyle’s support, Xtep successfully executed an IPO on the Hong Kong Stock
Exchange in June 2008. In challenging financial market conditions, Xtep’s IPO
raised approximately $285 million of new capital. Carlyle advised Xtep during the
underwriting process and worked with the company to select banking and legal
representatives, to coordinate the various parties engaged in the process, and to
resolve legal and financial issues that arose during the process. Xtep has used the
IPO proceeds to enhance its distribution network, expand its apparel production
facilities, support sales and marketing initiatives, and target acquisitions.
Xtep’s Performance
Since Carlyle’s investment in 2007, Xtep has achieved outstanding financial
performance and robust growth. From 2007 to 2009, revenues and profits grew
by 160% and 192%, respectively. In addition, the company’s profit margins have
steadily expanded: Gross profit margin has increased from 32.5% in 2007 to
39.1% in 2009; and net margin rose from 16.3% to 18.3% during the same period.
Xtep has also increased the number of franchise retail outlets by 40%, from
4,647 in 2007 to 6,533 in 2009, and the number of employees rose from 5,930 in
2007 to 7,352 in 2009, a 24% increase.
REVENUE
(RMB in millions)
1,364.9
2,867.2
3,545.3
07 08 09
GROSS PROFIT
(RMB in millions)
443.1
1,064.3
1,387.8
07 08 09
RETAIL OUTLETS
4,647
5,532
6,533
07 08 09