KKR signs $400m poultry deal in China

Kohlberg Kravis Roberts has acquired an 18 percent stake in Fujian Sunner Development, a Chinese chicken meat producer, for about $400 million, according to a statement.

The strategic partnership intends to expand the company’s operations to provide high-quality and safe chicken products to domestic consumers as food safety concerns in China continue to grow.

Sunner is one of China’s largest breeder, processor and supplier of chicken products in China, providing fresh and frozen chicken to its fast-food, food manufacturing and meat wholesale markets. According to the firm, Sunner maintains oversight of the full production chain, ranging from chicken farming to the management of feed mills to processing, “which better ensures safe and quality food products”.

While chicken is China’s fastest-growing protein, it only represents 17 percent of its total meat consumption, compared to close to 40 percent in Taiwan and Hong Kong.

Nevertheless, there have been widespread concerns about the quality and safety of meat products in China. Most recently, US-owned Chinese meat provider Shanghai Husi Food was exposed by a local broadcaster for selling out-of-date and tainted meat to its clients, which included McDonalds, KFC, YUM Brands and Starbucks, media reported in July.

The on-going concerns of Chinese consumers about the meat and dairy they are sold have been a lucrative opportunity for private equity firms to step in and implement best practices in these businesses, using their international reach to bring in experts from overseas.

“Partnering with companies that meet China’s demand for increased food safety is one of our key focuses for China investments. Sunner is a market leader in China’s chicken farming industry,” David Liu, chief executive of KKR Greater China, said in the statement.

“[Sunner] has an experienced management team and meets the highest operating standards. We look forward to working with them by providing capital, KKR’s global resources and operational expertise to further strengthen Sunner’s market leadership, contribute to China’s food safety initiatives and bring safe and high-quality chicken to Chinese consumers.”

In June, a KKR-led consortium, which included Baring Private Equity Asia, Hopu Investments and Boyu Capital, created a strategic partnership with Chinese state-owned enterprise COFCO’s pork and poultry subsidiary, COFCO Meat, to build and manage large-scale industrialised pig farms and meat processing plants in China.

The total deal value was $270 million, with KKR investing $150 million and the other firms making up the balance, with the firms intending to help the business improve its supply chain and best practices to ensure that its meat cannot be tainted at any level from production to sales.

The consortium will own 62 percent of COFCO Meat following the transaction, the source added, but emphasised that this was solely in economic terms. COFCO will remain the controlling shareholder in terms of driving the business, but hold an economic stake of 38 percent.

“Vertically integrated chicken farming is a key solution to the food safety threats facing China’s animal protein sector. Sunner has an excellent track record and has thoughtfully constructed its farms and processing facilities at strategic locations to ensure chicken quality and health,” Julian Wolhardt, member of KKR, added.