"We intend to invest between US$100-200 million in China every year, with a deal size of about US$25-30 million. At least one, and hopefully two, of the three deals we make each year should be in food and beverages," said Daizong Wang, based in the firm's Hong Kong office, and in charge of seeking opportunities in the mainland's food sector.
3i initially concentrated on technology and manufacturing firms in China but the rapid rise in living standards has led the group to shift its focus to consumer-oriented industry.
"We believe China is going to be more and more driven by domestic consumption," Wang told AP-Foodtechnology.com.
"The economy used to be more manufacturing and export-based but with rising labour costs and the depreciation of the currency, there will be more domestic consumption, especially with the growing middle class."
3i has only made one food-related deal so far - spending US$25 million on a minority stake in the Inner Mongolian restaurant chain Little Sheep last month. It is China's second largest after KFC, and with double-digit growth in the restaurant industry in recent years, 3i has its eye on a profitable exit.
3i is also looking at food and beverage manufacturing, particularly convenience foods, snack brands and food flavourings and sauces. It will look for opportunities in the top three players in a particular sector, according to Wang, ruling out the already significant dairy leaders as well as beer, where consolidation is being driven by foreign players.
Ingredients also offer little to entice the group, tending towards low margins and little branding.
But food retail such as the bakery chains, as well as catering firms, may offer good growth. And even meat processors, especially those concentrating on boosting margins through branded sausages and packaged products, could be worth some investment.
"The downstream market is where Shineway and Yurun have built their brand names," notes Wang.
A strong brand is one of the key criteria for 3i, and although there are not yet many big Chinese food and beverage brands, those that are well-known have already snapped up outside investors or partners; foreign participation now pervades China's booming dairy sector and is also increasing in juices.
But Wang believes the group has an advantage over the multinationals on the look-out to acquire local players.
"China's first generation entrepreneurs don't want to give up control of their companies and multinationals find it difficult to invest in these businesses. But we're happy to take a minority stake and leave management in control."
"We give them outside support, helping to improve financial governance and internal discipline. We can also help companies looking to go outside China. Firms increasingly want to distribute abroad but they need local knowledge and we can act as a bridge for them."
Wang plays down what many have called a rising protectionism by the Chinese government, and says that he sees little constraint for foreign investors. In any case, food and beverages are not considered strategic industry by the state.
The group is also in contact with industry associations and plans to hold a conference to bring together leading players with its European staff to discuss opportunities for working together.
"Money is a commodity these days so we try to show our industry knowledge and build up a relationship and trust with our partners," says Wang.
3i currently manages over 200 investments across Europe, US, Asia and Israel, valued in excess of $1billion. Given its lofty ambitions for China, its next deal in this huge market is likely to take place very soon.
