Gap to sell Greater China units to e-commerce firm Baozun

US apparel retailer Gap Inc has agreed to sell its Greater China businesses to Baozun Inc, the e-commerce service provider said on Tuesday, as headwinds persists for global consumer brands in the world’s second-largest economy.

Dealmakers have seen opportunities for merger and acquisitions involving multinational firms that look to spin off their China units, as growth outlook in the country grappling with strict Covid-curbs remains uncertain amid intensifying competition with domestic brands.

Earlier this year, American fast fashion retailer Forever 21 made its third effort to enter China after having left the market twice, while major sportswear companies Nike and Adidas lost ground to local brands Li Ning and Anta in recent years.

China’s Baozun said its unit would acquire Gap Shanghai Commercial and Gap Taiwan Ltd, which operate the whole business of Gap Greater China, with a primary deal size of $40 million and no more than $50 million for adjustment.

The Shanghai entity reported a net loss after tax of 256 million yuan ($35.34 million) for 2021, compared with 456.3 million yuan a year earlier, Baozun said in a filing. The Taiwan entity reported a post-tax net loss of T$199.8 million ($6.24 million) for the year ended January 29, 2022.

The transaction is subject to regulatory approval and expected to be effective in the first half of 2023, Baozun said.

Separately, Baozun said Gap has granted it an exclusive right to manufacture and sell its products in Greater China area. The arrangement can last two decades, with an initial term of 10 years that can be renewed twice for each five-year term.