Tian Tu’s Yoplait China sale leaves sweet, but also sour, taste

The venture capital company has set a new date of Dec. 31 to finalize the sale of its 45% of Yoplait China to a group affiliated with IDG Capital for 814 million yuan

Key Takeaways:

• Tian Tu Capital will book a small loss on the sale of its 45% of Yoplait China to a group affiliated with IDG Capital, as it extended a deadline for finalizing the deal
• The consumer-focused venture investor is examining new areas including digital assets and income-oriented investments to boost its anemic return rates

By Doug Young

It’s not easy being a venture capital investor in China these days, especially in a tough consumer sector plagued by weak sentiment due to a sputtering economy. That reality is all too apparent in the recent fortunes of Tian Tu Capital Co. Ltd. (1973.HK), which has only been able to profit modestly from one of Hong Kong’s hottest IPO markets in years.

Despite that, the company looks set to end 2025 on a relatively sweet note, following its announcement earlier this month of plans to sell its 45.22% stake in yogurt giant Yoplait China to a group affiliated with IDG Capital, one of China’s most successful venture investors, for 814 million yuan ($115 million). That deal suffered a minor setback last week, when Tian Tu announced it had yet to finalize the terms by a Dec. 10 target, and was extending the date to Dec. 31. Such delays aren’t uncommon for deals of this magnitude, and it appears Tian Tu simply wants to finalize things by the end of this year.

The deal is part of a larger sale of Yoplait China by its investors, which also include another holder of 41.74% of the company, as well as a management group that holds the remaining 13.04%. The IDG affiliate that is buying Yoplait China, Kunshan Nuoyuan Ruiyuan Management Consulting Co. Ltd., will pay a total of 1.8 billion yuan to buy out all three investor groups.

The venture, which carries the name of one of France’s leading food brands, is doing quite well lately, capitalizing on growing Chinese awareness of the benefits of yogurt in a healthy diet. Established in 2013, it booked 810 million yuan in revenue last year, nearly double the 454 million yuan it generated in 2023, as its net profit jumped to 95.5 million yuan from 8.39 million yuan over that period.

Given that strong performance, we wouldn’t be surprised to see IDG try to quickly flip Yoplait China through a Hong Kong IPO if the market remains strong by the time the deal closes. But that’s another story for another day.

The sale will bring Tian Tu Capital a nice chunk of change for future investment, though it’s really somewhat bittersweet. That’s because Tian Tu will actually record an 800,000 yuan loss on the sale, which is basically breakeven for such a large sum. But it’s hardly an exciting return for a six-year-old investment.

That seems to be the broader story for Tian Tu Capital these days, namely, that the company continues to get weak returns on its many investments. Things were even worse before the recent IPO boom, as the company was having difficulty exiting many of its investments in such a weak consumer market.

At least that element of the equation has changed somewhat lately. Among its nearly 200 portfolio companies at the end of June, at least a handful have made recent Hong Kong IPOs or are getting ready to do so. Those include tea seller Bama Tea (6980.HK), which made its trading debut in late October, infant products maker Butong Group (6090.HK), which debuted in September, and Distinct Healthcare, which filed for its Hong Kong IPO last month. Post-IPO performances have been mixed, with Butong currently up 47% from its listing price, while Bama is down 22%.

Return to profitability

China’s venture capital landscape has changed dramatically over the last six or seven years, both for market-related and regulatory reasons. While the market-related reasons are mostly related to a weak domestic economy, the regulatory ones owe to China’s clampdowns on various financial sectors over concerns about risky fundraising and lending practices.

Those two factors caused the number of private equity and venture capital funds to slide from 14,159 in 2018 to just 7,000 in 2022, Tian Tu said in its prospectus at the time of its 2023 IPO. As the market has slowed and the number of companies shrunk, the private equity industry did just 93 deals in the first nine months of this year, compared to 279 for all 2024 and 562 in 2022, according to PitchBook data cited in a recent CNBC report.

Tian Tu’s consumer focus has put it in a more difficult position than many of its peers focused on the technology and drug segments, which tend to see strong growth and greater interest from stock investors, making IPOs easier. In its latest midyear report for the first half of this year, Tian Tu said the average investment in its portfolio companies totaled 65.1 million yuan by the end of June, with an average fair value gain of 25.7 million yuan per investment – representing a relatively unimpressive return of about 40%.

The company’s revenue plus investment gains totaled 67 million yuan in the first half of this year. While that doesn’t look particularly impressive, it’s actually a major turnaround from the year-ago period, when the figure was nearly negative 600 million yuan, as the company logged 620 million yuan in investment losses. While the fact that Tian Tu could return to positive investment gains this year is commendable, the size of those gains won’t impress anyone, certainly not the company’s investors.

Tian Tu’s stock barely budged after the Yoplait China sale announcement, and the stock is down 22% this year – light years behind a nearly 30% gain for the benchmark Hang Seng Index.

The company acknowledged the difficulties it faces due to its focus on the consumer sector in its latest report, and said it is looking at several other areas to diversify beyond that reliance. It has already begun investing in some biotech startups, and in its latest financial report said it is looking at income-oriented investments, strategic M&A and select initiatives in the fast-evolving digital asset space as potential new investment areas.

It had 1.2 billion yuan in cash at the end of June that it could use for such investments, and will probably get some more from the Yoplait sale, as well as other upcoming share sales it’s likely to make following Hong Kong IPOs for some of its portfolio companies. There’s no guarantee that such a diversified investment strategy will bring better results than its core consumer investment focus. But at least such a move could bring some excitement back to Tian Tu’s stock, which is down nearly 60% from its 2023 IPO price.

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