Burger King Korea latest to be bought by private equity

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Burger King Korea latest to be bought by private equity


Burger King Korea has joined the growing roster of food and retail companies controlled by private equity firms after Affinity Equity Partners recently finished its buyout of the Korean operation of the fast food chain.

The private equity firm reached an agreement in February to take over the hamburger seller for an estimated 210 billion won ($183.3 million) from VIG Partners.

High sales by food and beverage companies as well as supermarket chains have drawn several private equity firms to Korea, but some worry about firms’ tendency to focus solely on turning a short-term profit.

“When a private equity firm takes the wheel, the management tend to be focused on physical expansion and onetime short-term value creation opportunities rather than long-term growth strategies,” said Yoo Jeong-hyun, a researcher at Daishin Securities.

“The case for Burger King won’t be any different because of the nature of the deal.”

Multiple local media reported on Monday that the franchise will increase the number of Burger King stores across the country this year, potentially a vehicle to boost sales.

Private equity firms raise funds from institutions and wealthy individuals and then invest that money in buying and selling businesses. They are obliged to make returns on the investment in no more than 10 years, prompting the firms to take aggressive restructuring measures, including layoffs.

Still, the firms are often successful in making companies more efficient and profitable, and Affinity has a solid track record of this in the Korean market.

Affinity and co-investor KKR purchased Oriental Brewery and sold it back to previous owner Anheuser-Busch InBev in 2014 for $5.8 billion, which represents three times their initial investment.

The country’s largest buyout to date also falls into the category of a retailer linked with a private equity firm.

The discount chain Homeplus was sold by Britain’s Tesco to a consortium led by MBK Partners, an Asia-focused private equity fund, for $6.1 billion last September.

The new management, however, has been struggling with the chain’s labor union, which is requesting full-time employment status and better treatment.

In a similar deal, KKR, a U.S. private equity firm, was selected as a preferred bidder last month for the sale of Kim’s Club Mart, a supermarket chain owned by retailer E-Land.

The researcher said that the heavy involvement of private equity firms in the retail sector is caused by a lack of local retailers with the capital necessary to purchase domestic companies being offered.

“There have been a number of retail units up for grab,” Yoo said, “The best scenario is a local retailer purchases them, but there are only few retail conglomerates with enough cash to clinch a deal, and many of them already have similar businesses.”

Burger King’s rival McDonalds is also on the lookout for “strategic partners” to run the Korean operations. Although the fast food giant didn’t elaborate on what kind of partnership it is seeking, market watchers said that the move is aimed at expanding the physical presence of the chain.

“We’re making progress as we execute our global turnaround and we’re challenging our business in different ways to accelerate growth and place us closer to our customers and the communities we serve,” said Steve Easterbrook, McDonald’s CEO and President.

“We’re committed to Korea for the long-term and intend to combine our global brand with local insights and expertise. This gives us the ability to enable faster decision-making, achieve restaurant growth and deliver a great restaurant experience for our customers in Korea.”

Melanie Joh, Managing Director of McDonald’s Korea, echoed the CEO’s intention. “The partner we are looking for will have a blend of exceptional integrity, a deep understanding of the Korean market, as well as complementary capabilities that will enable our accelerated growth in Korea.”

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]

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