Affinity Equity Partners has invested $123 million for a 40 percent stake in dairy company Beijing Sunlon Breeding Development, according to a source close to the deal.
Affinity declined to comment on the transaction.
Sunlon was founded in 1949 and is Beijing’s largest raw milk producer. It also runs a related livestock breeding operation.
The other 60 percent of Sunlon is owned by the Beijing Capital AgriBusiness Group (CAG), the agricultural business arm of the Beijing municipal government, which has joint ventures with other foreign entities such as McDonlads.
Affinity spent two years talking to the state-run Beijing Capital AgriBusiness Group before it closed the deal.
Affinity will have a board seat and both sides will make decisions jointly, the source told Private Equity International. The firm intends to open new facilities and, through Sunlon’s livestock breeding business, more than double the number of cows from the current 44,000.
In view of recent milk scandals, the Chinese government is promoting larger corporate-run farms with modern equipment and professional staff to ensure hygienic and efficient operations. Dairy farming receives special privileges such as certain tax exemptions on self-produced products.
The Carlyle Group, Kohlberg Kravis Roberts, CDH Investments and Morgan Stanley Private Equity are among other firms that have taken advantage of the opportunity through investments in Chinese milk producers.
Affinity spent two years working on the deal, the source said, adding that the transaction is the last one out of Fund III.
Affinity is currently raising Fund IV, targeting $3.5 billion.
Hong Kong-based Affinity Equity Partners, a 2004 spinout from UBS, is a pan-regional firm primarily investing in Korea, Australia and Greater China. It has $4 billion in assets under management, according to PEI’s Research & Analytics division.