Lunar Capital in Italian childrenswear deal

Lunar Capital has bought a majority stake in the Asia business of Italian childrenswear brand Pinco Pallino, and plans to build fifty stores in seven countries over the next five years.

Shanghai-based Lunar Capital has signed an agreement with Italian luxury childrenswear brand Pinco Pallino to develop a joint venture brand, I Pinco Pallino, in China and East Asia, according to a joint statement.

According to the agreement, Lunar and Pinco Pallino will develop the brand in seven countries across East Asia, with Lunar owning the majority of the joint venture and the trademarks for Pinco Pallino’s Asia business, according to Gordon Chin of Lunar's legal team.

“We are buying into what we hope will be the largest subsidiary of the parent company,” managing partner Derek Sulger added.

As part of the deal, the firm has also acquired a significant minority stake in the parent company in Italy, but the exact stake sizes are not disclosed. Lunar will have control of the joint venture’s board, and has also appointed one member to the board of the Italian parent company.

The firm has committed up to $25 million of capital, with no debt funding, for developing the brand across Asia, which will be deployed in stages, according to Sulger. The two companies hope to open fifty stores under the “I Pinco Pallino” brand over the next five years, according to the statement.

The capital for this deal comes from Lunar Capital Partners III, Chin said, which is now about 40 percent invested. Lunar has actually set up a special vehicle within that fund dedicated to childrenswear and baby product investments, Sulger added, and the firm hopes to build off its experience in those companies to develop I Pinco Pallino.

Lunar chose to invest in Pinco Pallino because its brand is already well-established in Europe, Russia and the Middle East, but China remains a “virgin market”, according to Steven Li of Lunar's operations team. In addition, the firm wanted to add a more high-end brand to its portfolio in order to cover the entire price range of childrenswear in China.

Although Lunar was approached by several domestic luxury brands, it chose Pinco Pallino because it is also owned by Milan-based private equity firm Opera SGR, and because of China’s increasing demand for foreign goods.

“We always thought for China, for doing luxury, you’re probably not going to see a domestic brand come up and dominate the space,” Chin told Private Equity International.

Lunar Capital is a control-oriented private equity firm focused on investments oriented toward Chinese consumer demand. With over $200 million assets under management, according to PEI’s data division, the firm’s average investment size is between $25 million and $200 million.