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LVMH adds Crystal Jade to Singapore jewel box
[SINGAPORE] After three years of courtship, L Capital Asia, the private-equity arm of French luxury goods giant LVMH Moet Hennessy Louis Vuitton, has bought home-grown Chinese restaurant group Crystal Jade in a deal that market sources place at around US$100 million.
As L Capital adds yet another Singapore name to its growing collection of brands, Crystal Jade is set to soar in coming years. The restaurant group will tap LVMH's expertise in branding and marketing, as well as its relationships with landlords worldwide to place outlets in strategic locations.
It plans to expand to Europe and the Middle East in addition to other parts of the world. An initial public offering (IPO) could eventually also be on the cards.
"The business has come to a size that is quite big, and my age is not suitable to carry the business to another level," Crystal Jade group chairman and CEO Ip Yiu Tung, 65, told The Business Times over dinner at Paragon's Crystal Jade Golden Palace restaurant, confirming market talk in the past month that the company had been sold.
"The new owner ... is good in planning, promoting, marketing, know-how that we lack," he added.
Private-equity firms like L Capital typically invest in companies with the aim of improving their operations and their value before selling their stakes five to 10 years later and returning money to investors.
An industry source told BT last night that the deal will give the chain a boost. "L Capital can use their broader group clout to great effect, particularly their negotiating power with landlords, because of the wider retail offerings they have," he said.
L Capital will be buying more than 90 per cent of Crystal Jade. It typically exits its investments four to six years later, possibly through an IPO or a trade sale to another fund or company.
"We're in no hurry (to exit), we're patient and we take a long-term view," L Capital managing director Christina Teo said. "Eventually we can bring it all over the map, to all regions like the Middle East, the US, Australia, India. These are just the tip of the iceberg.
"A name like Crystal Jade for a Chinese restaurant is also easy to remember. It has strong brand equity and can travel very well globally."
Crystal Jade will be the first food and beverage (F&B) company and the first Singapore company in L Capital Asia's Fund 2, a 10-year fund started this year with a committed capital of US$1 billion.
Typically, the first five years will be spent investing while the remaining five will be spent divesting. L Capital is "ahead of its investment schedule", added Ms Teo.
Crystal Jade is its third investment for its Fund 2, after Australia apparel maker 2XU and Italian luxury shoe brand Giuseppe Zanotti. A fourth purchase to be announced is a Chinese online fashion company. The earnings multiple paid is "fair and reasonable from both sides", Ms Teo said.
L Capital's purchase marks the end of an era for Mr Ip, who invested more than $2 million into an ailing restaurant in 1992 and turned it around into a Singapore household name and award-winning brand.
Crystal Jade made around $250 million in revenue last year - a compound annual growth rate of more than 20 per cent a year over the past 20 years. The company is financially strong and did not need any money, Mr Ip revealed.
Group net profit margin has always been in the "single digits", even though individual restaurants might hit double-digit percentages.
However, earnings have been "a little bit stagnant in the past few years", he admitted.
The F&B business has low barriers to entry. Competition is cut-throat, and staff, especially in Singapore, have become a lot harder to hire in recent years with the clampdown on foreign labour and the reluctance of locals to work in the service industry.
"F&B is already a tough business. And with our widely spread-out subsidiaries, there was a lot to do . . . I would like the company to have a future, and this is the only reasonable move," Mr Ip explained.
In Singapore, a downturn in retail sentiment has caused landlords to convert many retail shops to F&B outlets, causing an oversupply in the restaurant space, he pointed out.
"We will offer people good food at a reasonable price so that we keep a survivable situation. Once consolidation is done, we'll come up again," he added.
For Ms Teo and L Capital, the journey to make Crystal Jade truly international has just begun.
She has plans to improve profitability and product offerings, such as tie-ups with LVMH brands on wine selection.
"If a choice location comes up, hopefully we'll be the first to hear it and get our foot in the door. We will also help in terms of selective expansion. Now, Crystal Jade is only in 10 countries."
The quality of its food is a plus, she observed. L Capital commissioned an independent taste test for la mian (noodles) and xiao long bao (dumplings) last year and also looked at reviews from restaurant website OpenRice. It found that Crystal Jade ranked top in taste and service in Singapore.
Crystal Jade's numerous dining concepts across the high-volume, profitable mass market to the top-end segment is another strength, Ms Teo noted. The idea is to start people somewhere affordable and then move them up the chain, she added.
Mr Ip said the fine dining segment generates only about 10 per cent of revenues, with margins not necessarily higher compared to the mass market segment. But having a fine dining segment is important to "let people know we're making very good food".
Crystal Jade is doing well in places such as Hong Kong, South China, and Vietnam, he added.
This year, the group is due to open new outlets in South Korea, Indonesia and the US, among other places.
He will stay on as CEO for a year while his replacement is being trained. He will still remain with the group as a brand ambassador or adviser. Using the sale proceeds, he is also working on a programme to reward key staff, possibly giving them shares in the company.
The sale of the company he has invested a major part of his life in will help ease some of the pressures he faced in running it round the clock. Now, he intends to be involved with other things, like philanthropy and sustainability initiatives.
"This is a turning point. I will face another future. I won't just go fishing or travelling," he said. "I still need some job to keep me busy. But not be under very high pressure, so I can enjoy life, and also try my best to grow Crystal Jade. And also, I would like to do something for the world."