M&A

Norwegian wood

Home furnisher Qumei makes $630 million bid

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Age cannot wither them – to paraphrase Shakespeare’s line about Cleopatra. Statues made in Ancient Greece pre-date the Egyptian queen by 500 years or more but they still astonish today. A particular skill of the Athenian sculptors was to give a sense of motion to their marble statues through expert chiselling of a figure’s flowing robes. The same could be said of carpentry, where the smoothness of a piece of bended wood speaks volumes about the skills of those working the material. So when a Chinese furniture maker called itself Qumei (literally “the beauty of curves”), it indicated the brand was serious about its own artisanship.

That may have been a factor in winning over a Norwegian furnishing group it wished to acquire.

After a year of courtship, Beijing-based Qumei Home Furnishings Group has offered $630 million to buy Oslo-listed upholstery producer Ekornes, paying a premium of almost 18% to its last traded price. The company markets its products under various brands such as Stressless, Svane, IMG and its eponymous label.

At least 55.6% of its shareholders must now consent to the deal – a target that is halfway met (thanks to approvals from Ekorne family members and other major owners). The board has unanimously recommended the deal. “This agreement opens new growth opportunities for Ekornes and our renowned brands such as Stressless and IMG in China and in existing markets,” Olav Holst-Dyrnes, Ekornes’ CEO, said in a statement. “We will benefit from Qumei’s insight into Chinese consumers’ design and product preferences and gain accelerated access to the Chinese market,” he added, noting that Qumei has more than 850 stores across the country (most are owned by franchisees).

The deal comes at a time when the Norwegian maker of the Stressless Recliner chair – regarded by many as the most comfortable in the world – has been performing far from comfortably. Last year Ekornes’ net profit fell 37% on the year to 200.5 million kroner ($24.87 million) as revenues shrank 2%. Performance was hurt by competition from lower-end brands in Europe, the region from which it derived nearly 57% of its sales revenue.

Qumei, on the contrary, is benefiting from the growing affluence and lifestyle upgrades of Chinese consumers. Its net profits rose by a third to Rmb245.5 million ($38.4 million) in 2017 on revenues of Rmb2.1 billion.

Founded in 1987 by Beijinger Zhao Ruihai, Qumei started out as a sofa maker and ventured into bentwood furniture in 1993. The consistently high quality of its product range has won fans. Following its flotation on the Shanghai bourse in 2015, the company increasingly focused on ergonomic and personalised designs, and by last December had opened 88 specially-themed showcase stores. It also works with e-commerce giant JD.com on sales strategies and Big Data applications.

Zhao said the acquisition of Ekornes marks “the first crucial step in Qumei’s globalisation efforts” and he confirmed that it will maintain Ekornes’ manufacturing base in Europe for quality assurance.

That decision has eased the concerns of some of Ekornes’ employees. “I’m positive, primarily because we are to be bought by an industry entrepreneur and not a financier,” Edvard Lie, a trade union rep, told Norway’s Aftenposten.

That’s not entirely the case: Qumei has teamed up with the private equity arm of Nanjing-based Huatai Securities on the deal (it owns 9.5% of the investment vehicle being used to buy Ekornes). However, the Zhao family is backing the deal with its own cash too: Qumei will get Rmb1.5 billion in loans from Zhao and two of his brothers, who together control 73% of the listed company. They may face some dilution, however, as the company also plans to issue new shares worth Rmb2.5 billion.

Some analysts have told media that the size of the deal looks risky for Zhao. After all, the price being paid for Ekornes is roughly twice his own firm’s revenues.

His bold foray also comes at a time when capital controls and a tightening credit environment have seen China’s overseas M&A activity dwindle. The volume of Chinese outbound investment and the number of deals stood at $55.9 billion and 213 respectively as of June 6, down 8% and 22% on the year respectively, according to Dealogic.


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