McDonald’s Corp is eyeing private-equity firms, including Bain Capital LLC, MBK Partners Ltd, TPG Capital Management LP and Chinese state-backed conglomerate China Resources (Holdings) Co (華潤集團) for its planned sale of 2,800 restaurants in North Asia, people familiar with the matter told reporters.
The US fast-food giant is adopting a new business model in Asia, which is now the most intense battleground for global restaurant chains, by planning to bring in partners to own the restaurants within a franchise operation.
Several other global restaurant operators have switched to the so-called franchise model and McDonald’s has also set a long-term aim of being 95 percent franchised, the company said in a statement on March 31.
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Oak Brook, Illinois-based McDonald’s has hired Morgan Stanley to run the sale of the restaurants in China, Hong Kong and South Korea, the people said.
A formal sales process is expected to begin in about three to four weeks, one of the people said.
Ahead of that, McDonald’s and its adviser are drawing up a list of likely partners that will be approached to participate in the auction, the person added.
The franchise partners would likely end up owning a majority stake in the restaurants in each market, or even as much as 100 percent, and be responsible for future capital spending. The precise structure of the deal is still to be decided, the sources said.
In return, McDonald’s is to get a one-time franchise payment and ongoing royalty fees, which usually range between 3 and 5 percent of annual turnover.
Asia-focused Baring Private Equity Asia is the other buyouts firm likely to be invited to the auction process, banking sources familiar with the process said.
The private-equity firms are attracted to the rapid growth opportunity available in the so-called quick-service restaurants’ (QSR) business in Asia.
“In recent years, even though formal dining may have been impacted by the austerity measures, QSR as a format is growing pretty rapidly,” said Kiki Yang, a greater China partner at consulting firm Bain & Co.
“QSR has the format that a lot of investors like because of the growth of the segment, standardized procedures and it’s easy to expand,” Yang said.
Apart from the proceeds from a sale, an agreement would lower McDonald’s capital spending needs, which totaled US$2.6 billion last year.
McDonald’s also plans to open 1,500 more restaurants in China and Hong Kong over the next five years, to tap the region’s rapid growth.
However, McDonald’s and Yum Brands Inc have been facing increasing competition from cheaper local rivals, particularly in China, where they are both trying to recover from food safety scares.
Yum, which operates the KFC and Pizza Hut chains, is also in the process of spinning off its 6,900 China restaurants and is in talks with buyouts firms, including KKR & Co and Hopu Investment Management Co to sell up to a 20 percent stake after battling sliding sales over the past few quarters.
Bruised by food safety scandals and changing tastes, McDonald’s is also selling a big stake in its Japanese arm.
Buyout firms, including Bain Capital, Permira Advisers LLP and MBK, were among those who submitted bids for the McDonald’s Japan stake earlier this year, though it was unclear if a deal is close.
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