Muristek
McDonald’s restaurant in Seoul McDonald’s Corp., the world’s top fast-food restaurant operator, is seeking to sell its South Korean business, heating up the mergers and acquisitions market in the local burger industry.The domestic investment banking industry sources have mixed views on the sale as some see the stagnant burger sector in the country as reducing interest in the operation while others say the local fast food business remained attractive, given the increasing number of single-person households and rising demand for post-COVID-19 dining-out.McDonald’s headquarters has named Mirae Asset Securities Co. as an advisor to find a partner to take over the South Korean operation, in which the fast-food giant holds a 100% stake, according to local IB industry sources on Thursday.Outside US markets, McDonald’s has been selecting domestic companies, so-called development licensees (DLs), to manage operations there and receiving royalties from them since 2006.On the South Korean operation, it had negotiations with a consortium of The Carlyle Group, a US private equity giant, and Maeil Dairies Co., a local dairy player, in 2016, but the talks failed. Carlyle acquired McDonald’s businesses in China and Hong Kong, which were put up for sale along with the South Korean operation, in another consortium with Citic Group on the mainland.BURGER M&A SPREENews of McDonald’s sale of the South Korean operation comes as its competitors are already on the market. Affinity Equity Partners, a global PE firm, chose Goldman Sachs as its advisor for the planned sale of its entire stakes in Burger King’s operations in South Korea and Japan late last year to book profit from its purchase in 2016 from a Seoul-based PE firm VIG Partners.South Korea’s chemical- to steel-focused KG Group hired Samjong KPMG LLC as an advisor earlier this year to sell KFC Korea due to sluggish earnings and deteriorating financial structure. KG Group bought the fried chicken franchise from CVC Capital in 2017.In addition, a local low-cost burger chain Mom’s Touch is expected to be put up on sale in the second half.STAGNANT GROWTH, RISING COSTSGrowth in South Korea’s burger market has been stagnant since 2016 when McDonald’s was hit by allegations that an undercooked burger sold at one of its restaurants caused a girl to become ill. The outbreak of COVID-19 in 2019 also hurt the sector.The number of burger restaurants almost is getting closer to a maximum level, industry sources said. The recent aggressive expansion by Burger King and Mom’s Touch raised the number of major burger brand outlets in the country to some 3,500. The number is expected to increase to up to 4,000 around 2025 with a forecast of no further growth after that, the sources said.Costs are increasing as ingredients, labor and delivery expenses keep rising. McDonald’s South Korean unit has been in the red with an operating loss of 27.7 billion won ($22.1 million) last year, 48.3 billion won in 2020 and 44 billion won in 2019, respectively, although its sales grew to 868.7 billion won in 2021 from 724.8 billion won in 2019.Its delivery costs surged when the country imposed restrictions against COVID-19, raising demand for the delivery service. The South Korean operation was also known to spend much on maintaining the quality and manpower in line with the standards required by the US headquarters. In addition, its royalty payment rose 8.4% to 54.3 billion won in 2021 on-year as the payment is based on sales, not profitability.HEADQUARTERS DISCRETIONIt is a key for the sale how much discretion McDonald’s headquarters grants to new operators, industry sources said. Currently, the South Korean unit needs to discuss any plans such as the development of new menus or reduction in manpower with the headquarters before making any decision.KFC Korea was understood to have failed to make a breakthrough as Yum! Brands Inc., the headquarters of the fried chicken franchise, was conservative in the development of new menus for local customers. McDonald’s is likely to follow the suit, industry sources said.“McDonald’s headquarters prefers strategic investors that help create a long-term synergy, as far as I know,” said an IB industry source in Seoul. “It is a buyers’ task to improve management efficiency while maintaining the headquarters’ strict quality standards.”McDonald’s may have to compete with KL & Partners as the Seoul-based PE firm is expected to sell Mom’s Touch, which has the most burger restaurants in South Korea with 1,352 outlets, in the second half.KL & Partners, which bought a 56.8% stake in Mom’s Touch, completed the preparation of the sale by delisting it from the country’s junior Kosdaq last month.By Chang-Jae Yoo and Jun-Ho Chayoocool@hankyung.comJongwoo Cheon edited this article.
Most Read