A view of a McDonald’s store in Seoul. photo = news 1
The domestic corporate M&A market is crowded with hamburger brands. After Burger King and KFC, Korean McDonald’s are also on sale. Mom’s Touch, a domestic hamburger brand that voluntarily delisted in March, is also expected to appear in the market in the second half of the year, so it is evaluated that a ‘big market’ for fast food M&A has been established.
The investment banking (IB) industry is divided between the analysis that the growth of the domestic hamburger market is stagnant and it will not be easy to find a new owner, and the forecast that there will be many original buyers due to the increase in single-person households and the end of Corona 19, etc.
○Hamburger brands are on sale one after another
![[단독] Even McDonald's... Big 4 hamburgers that rose to the 'M&A table' all at once](https://i0.wp.com/img.hankyung.com/photo/202206/AA.30276614.1.jpg?w=1430&ssl=1)
According to the IB industry on the 9th, McDonald’s US headquarters selected Mirae Asset Securities as an advisory company and is looking for a partner to take over the McDonald’s business in Korea. Since around 2006, McDonald’s has been changing its business structure to a local business operator (DL) outside the United States, and the head office receives only royalties. In Korea, negotiations were held with the Maeil Dairies-Carlyle consortium in 2016, but the deal failed. The Chinese and Hong Kong business rights, which were on sale at the time, were acquired by global private equity fund (PEF) Carlyle in a consortium with China’s Citic Group.
Earlier, Affinity Equity Partners, a global private equity fund, decided to sell Burger King’s Korean and Japanese business rights at the end of last year and selected Goldman Sachs as an advisor. KG Group, which owns KFC, hired Samjong KPMG earlier this year and is in the process of selling it.
The reasons for the sale vary. Burger King was put up for sale six years after Affinity acquired it from domestic private equity fund VIG Partners in 2016 for an ‘exit’. KFC is a case in which KG Group bought from CVC Capital, a European private equity fund, in 2017, and then put it back on the market due to sluggish performance and worsening financial structure.
○ Everyone is interested in finding a new owner
With global fast food brands pouring into the market all at once, interest is focused on whether they will succeed in finding new owners. The growth rate of the domestic hamburger market has stalled due to the hamburger disease outbreak in 2016 and the COVID-19 pandemic in 2020. There are many evaluations that the number of stores has reached the saturation level. The number of major hamburger brand stores nationwide reached about 3,500 as of last year. Burger King and Mom’s Touch have been aggressively expanding their stores in recent years. The industry predicts that the number of stores will increase to 4,000 by 2025 and then stop increasing.
Costs such as raw material costs, labor costs, and delivery costs are also on the rise. McDonald’s sales increased every year from 724.8 billion won in 2019 to 791 billion won in 2020 and 867.8 billion won last year. Including franchise sales, it is said that last year’s sales exceeded 1 trillion won. However, it is making an annual operating loss of 44 billion won in 2019 and 48.3 billion won in 2020 and 27.7 billion won last year.
In particular, during the COVID-19 pandemic, delivery costs increased significantly as the proportion of sales through delivery such as Coupang Eats and Baedal Minjok increased. It is known that a considerable amount of cost is required to maintain the quality control and the number of people per store that meet the headquarters standards. In addition, McDonald’s Korea pays royalties to the headquarters in proportion to sales rather than profits. Accordingly, 50.1 billion won in 2020 and 54.3 billion won last year went to the headquarters as commissions.
The key is how much discretion the global headquarters gives new operators. Currently, major management decisions such as developing new menus and reducing the number of people per store must be discussed with the head office. KFC is known to have failed to make a breakthrough in the turnaround because its headquarters, the salt brand in the United States, maintained a conservative attitude in developing new menus suitable for the Korean market. McDonald’s is also likely to adhere to strict headquarters standards.
An official from the IB industry evaluated, “Enhancing management efficiency while maintaining the quality standards of the headquarters is a task that acquisition candidates must solve.”
Another variable is Mom’s Touch, a low-priced hamburger brand that will be on sale in the second half of the year. Mom’s Touch is the No. 1 company in terms of the number of stores (1352), surpassing Lotteria (1,330). At the end of 2019, domestic private equity fund KL & Partners acquired a 56.8% stake. Last month, the KOSDAQ market completed the process of delisting, preparing for the sale.
Reporter Yoo Chang-jae/Cha Jun-ho
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