The standard must-have for the middle class has been sold.

The "standard household item" for middle-class families is now up for sale.

According to exclusive information from PE Daily - M&A Frontline, A.O. Smith (NYSE: AOS) recently announced that it has signed a definitive agreement with CPE Yuanfeng: CPE will acquire an 81% equity stake in A.O. Smith's China business, while A.O. Smith will retain the remaining 19% stake.

It is reported that the current transaction values A.O. Smith's China business at approximately 400 million U.S. dollars, and this figure only accounts for the value of the equity itself. If the present value of brand licensing fees that can be continuously received over the next few decades is added back, the total transaction size will exceed 500 million U.S. dollars. The closing is expected to be completed in the first half of 2027, subject to regulatory approval.

After years of operation in China, the most prominent impression A.O. Smith left on Chinese consumers is its premium water heater products, which once dominated the Chinese market for many years. As market tides rise and fall, this high-value asset is now sold to a Chinese private equity firm.

Once the top seller of premium water heaters

Now it is divested

A.O. Smith entered the Chinese market earlier than most people expected.

The company's history dates back to 1874, and it entered China in 1995 with a diversified business portfolio: among its three joint-venture business lines, water heaters only took up a small share, while the other two were related to auto parts and fiberglass pipes respectively. Three years later, it acquired all the shares held by the Chinese partner to establish a wholly-owned factory in Nanjing, which later became its China headquarters.

A.O. Smith caught a favorable market window. From the late 1990s to the 2010s, China's commercial housing market saw explosive growth, and consumer demand for water heaters shifted from "basic bathing function" to "comfortable bathing experience". With its patented Golden Guard inner tank and the brand positioning of "U.S. Water Heating Expert", A.O. Smith's products entered the bathrooms of countless middle-class households across China.

A.O. Smith's brand label is not limited to water heaters. In the Chinese market, it operates multiple premium product lines simultaneously covering water purification, heating, air purification, and water softening, and its commercial water heating and water purification businesses are also important segments of its operation.

At its peak, A.O. Smith ranked first in the offline retail sales of storage-type electric water heaters in China for consecutive years, and also maintained the long-term top position in the offline retail sales of premium electric water heaters and premium water purifiers.

In 2021, A.O. Smith's revenue in China hit a historical high of 922 million U.S. dollars.

However, its performance has been on a downward trend ever since: its China revenue reached 835 million U.S. dollars in 2023, 792 million U.S. dollars in 2024, and 690 million U.S. dollars in 2025, shrinking by a quarter within four years. The proportion of China's revenue in the company's total revenue also dropped from 22% in 2023 to 18% in 2025.

The decline accelerated further in 2026. In the second quarter, China's revenue fell by 28% calculated in local currency; in the third quarter, while the North American market still maintained growth, the China business recorded a 17% year-on-year decline in a single quarter.

The reasons behind the decline are not complicated. The downturn in the real estate market has dragged down new demand, and the phasing out of the national government subsidy for home appliance trade-in in the second half of 2025 further advanced the replacement demand of consumers. In the remaining stock market, brands including Haier Casarte and Midea COLMO are continuously squeezing its market share with richer product lines, faster new product launches and more aggressive pricing strategies.

In July 2025, A.O. Smith announced the launch of a strategic review of its China business, which attracted a large number of potential buyers. In April this year, Bloomberg reported that CPE Yuanfeng and PAG were both on the list of potential bidders.

Finally, the deal was closed and awarded to CPE Yuanfeng. Steve Shafer, CEO of A.O. Smith, once stated on an earnings call that the conclusion of the review is that this business can achieve better positioning only "under the leadership of a mature local investor". In other words, this business should be operated and managed by local shareholders.

Leading local M&A player

CPE has been very active in the consumer M&A market recently.

Back in November last year, Burger King China welcomed a new shareholder: CPE Yuanfeng and RBI Group announced the launch of strategic cooperation, and the two parties established a joint venture "Burger King China", in which CPE Yuanfeng holds an 83% stake and will inject 350 million U.S. dollars (approximately 2.5 billion RMB) of initial capital to support the expansion of its restaurant stores, marketing activities, menu innovation and operational capability improvement. The deal was officially closed in February this year.

In July this year, CPE Yuanfeng officially signed a share purchase agreement with European private equity firm Jacobs Capital to fully acquire Mammut Sports Group AG, and the transaction is expected to be closed within the next few months.

Founded in Switzerland in 1862, Mammut is a global premium outdoor brand. At that time, Mao Wei, Managing Director of CPE Yuanfeng, disclosed that the firm will work closely with Mammut's management team to empower the company in multiple dimensions including product adaptation, brand operation, channel layout and supply chain upgrading, so as to accelerate the company's growth in high-potential markets, especially the Asian and Chinese markets.

So far, within one year, the China (or global) businesses of three multinational brands have been acquired by the same Chinese private equity firm.

CPE Yuanfeng is widely recognized in China's private equity circle: its predecessor was CITIC Private Equity Funds Management, and it has a total assets under management of over 150 billion RMB to date. Its core team has invested in more than 300 projects across the United States, China, Europe, Japan and the Middle East. One of its core strengths is holding-type industrial investment: it not only provides capital, but also sends dedicated teams to participate in actual operation and management.

This is also a microcosm of the current M&A and integration boom.

As market cycles keep rolling, a large number of legacy projects of European and American private equity firms are now maturing and seeking exits, while multinational giants are also accelerating the divestment of non-core businesses for monetization. Against this backdrop, local Chinese PE firms that are optimistic about the growth potential of the Chinese market are exploring greater opportunities. "Taking over these assets" is only the starting point of this round of asset revaluation.

This article is from the WeChat official account "M&A Frontline", written by Yang Jiyun, and authorized for release by 36Kr.