Dairy firms looking at M&As

Children pass by an advertisement of Feihe Dairy in Beijing, May 12, 2009. The heat of merger and acquisition activity in the domestic dairy industry is expected to reach its peak in May, with time ticking for smaller and medium-sized enterprises to find buyers, an industry insider has observed. [Photo by Wu Changqing / Asianewsphoto]

The heat of merger and acquisition activity in the domestic dairy industry is expected to reach its peak in May, with time ticking for smaller and medium-sized enterprises to find buyers, an industry insider has observed.

Industry analyst Song Liang estimates that China's dairy industry will be further consolidated by this spring.

Since 2014's start, large dairy companies already have taken action.

Leng Youbin, chairman of Feihe Dairy, a subsidiary of Feihe International, said it's time domestic infant formula companies merged.

And on Jan 14, Feihe announced it would acquire Jilin Alfbeta Dairy Co Ltd.

After the acquisition, Alfbeta will keep its independent management in infant and children dairy formula distribution.

Unique locations in Northeast China and advantages in dairy sources and distribution channels were said to be incentives for Feihe to make the acquisition.

Moreover, the move will facilitate Feihe's goal to further explore the southern market to increase market share, according to the company.

In December, Biostime International Holdings Ltd, a pediatric nutrition and baby care products provider in China, announced its acquisition of Changsha Yingke Nutrition Products Co Ltd for 350 million yuan ($57.3 million).

The Changsha company is engaged in the manufacture of infant formula products.

The acquisition will expand Biostime's production capacity for its new ADIMIL milk powder brand, which targets the high-end markets in fourth- and fifth-tier cities for business growth, according to Biostime.

The acquisition of Changsha Yingke, to be earmarked for the production of ADIMIL, will boost annual infant formula milk powder production capacity by 30,000 tons to 50,000 tons, said Biostime.

The move reflects Biostime's "going back" strategy, said Song.

Though the company has grown its business by utilizing foreign milk sources, it is reportedly eager to become more localized and to partner with domestic producers.

Analyst Song said the ball is now in the court of buyer companies.

Small and medium-sized companies that raised prices last year may find themselves being left behind if they haven't secured a buyer, he said.

Companies with production permits and good dairy resources are being sought out. Song said that after this round of mergers and acquisitions, as well as the consolidation of manufacturing plants, product quality will greatly improve.

Last year, the Ministry of Industry and Information Technology announced it would foster the growth of large dairy companies over the next two years and aims to cultivate 10 enterprises each with an annual sales revenue exceeding 2 billion yuan.

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