Chinese jeweler buys Hearts On Fire

Chow Tai Fook Jewerlly Group Limited, one of the leading jewelers in China, is buying the Boston-based luxury diamond company Hearts On Fire for $150 million to expand its range of high-end gems in the Chinese market.

The acquisition will be funded by internal cash reserves and is the company's first since it went public in Hong Kong in 2011. The cash-free, debt-free deal is scheduled to be completed by the end of September and will bring Hearts on Fire to locations in Shanghai and Hong Kong by March of next year.

"We welcome Hearts On Fire as our valuable partner that shares the same vision for high quality and innovative products," said Henry Cheung, chairman of Chow Tai Fook. "The proposed acquisition is a strategic move to complement our product portfolio with an exclusive premium diamond jewelry line and to raise our profile as a world-class diamond expert in the jewelry industry."

Chow Tai Fook will remain focused on its business in China and Hearts On Fire will run as a standalone under the continued leadership of CEO and chairman Glenn Rothman and the senior management team.

In addition to its existing sales network, Hearts On Fire's products are expected to be introduced to the Hong Kong, Macao and Chinese mainland markets through Chow Tai Fook's extensive retail network within six months of the acquisition. With minimal operational overlap between Chow Tai Fook and Hearts On Fire, a smooth integration is expected within a relatively short time, a press release said.

"Chow Tai Fook brings to the Hearts On Fire retail distribution channel, powerful financial resources, high-tech manufacturing capacity, and their innovative culture of creative talent," said Rothman. "These best-in-industry resources will provide Hearts On Fire the support and opportunity to expand exponentially, as we enter new markets, leveraging Chow Tai Fook's leadership in the jewelry industry and its extensive retail network in China. This is an unprecedented opportunity to grow the Hearts On Fire brand and reach millions of new customers."

Chow Tai Fook, whose core business is the manufacture and sale of high-end luxury jewelry, is the world's largest jeweler, valued at $15 billion. The Group has an extensive retail network, with more than 2,000 points of sale in more than 470 cities in China, Singapore and Malaysia.

Hearts On Fire, founded in 1996 by Glenn and Susan Rothman, has more than 500 locations in 31 countries, with the US being its largest market. Its audited net sales of $104.8 million last year represented a 5.5 percent increase over 2012 sales of $99.3 million. Some 75 percent of the company's sales range from $1,000 to $10,000 and the majority of the remaining sales are greater than $10,000.

John Vardis, the owner of The Diamond Analyst, a guide to diamond acquisition and investment, said that the merger is a promising development for Chow Tai Fook because it's bringing a well-known American brand to their distribution system in China.

"It's a good sign that they chose a company that focuses on quality manufacturing, which Hearts on Fire is known for, the quality of their diamond cutting," said Vardis. "Depending on how big the brand grows, the ability to cut enough diamonds at the standard that Heart on Fire is known for can become a challenge. The long process that it takes to cut something to perfection and the capacity to reach the volumes that Chow Tai Fook has might be a challenge in the future."

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