By Park Si-soo
Private equity funds are aggressively expanding investment in food and beverage companies, betting on their strong profitability and sound cash-flows. Above all, it is convenient to resell them, analysts say.
More than five food and beverage makers have fallen into the hands of Korean or foreign private equity funds within the past year; these include KFC, Woongjin Foods, Hollys Coffee, Coffee Bean and BHC.
Currently, Now IB Capital is in talks with creditors of Kraze International, which is under court receivership, to take over the firm's handmade burger franchise brand Kraze Burger.
Market insiders say this trend can be seen as a dismal consequence of the increasingly uncertain future of the manufacturing business. A prolonged economic slowdown hit the bottom lines of major companies, denting their attractiveness as investment targets.
Food companies were not immune from this downturn. Yet they were affected less than others, reflecting their relatively stable profits. Another element making this area attractive is that food companies are purchasable for what investors describe as a "small" amount of money. Many of the food and beverage companies recently taken over by private equity funds were available for around 100 billion won ($97.9 million).
"It's less burdensome to make investment into these companies (compared with manufacturing companies), because the amount of money we put in initially is relatively small," an industry insider said. "For that reason, there are several private equity funds looking for an opportunity to buy food and drink companies in Korea."
In the latest case, CVC Capital Partners purchased Korea's KFC franchise from a subsidiary of Doosan Group for 100 billion won in May.
The deal was CVC's fourth in the restaurant area in 18 months as the London-headquartered private equity firm places its bets on rising disposable income and changing dining habits among Asian consumers.
"Asians used to eat at home, but we are seeing an increasing trend to dining out across the region. Quick dining venues like KFC are growing fastest in Korea," CVC's Seoul-based senior managing director Charles Huh was quoted as saying in a report. Doosan previously sold its Burger King business to local private equity firm Vogo for 110 billion won in 2012.
In September, a consortium led by Korea's Mirae Asset Global Investments acquired The Coffee Bean & Tea Leaf.
"We have followed The Coffee Bean for many years, in particular its rapid expansion in Asia, and have been impressed by the strength of the brand and its connection with its consumer base," HY Kim, managing director at CDIB Capital, a member of the consortium, was quoted as saying in a report. "We believe that the company's authentic Southern California brand heritage and global resonance provides a strong base for the future."
Founded in 1963, the coffee franchise has over 900 outlets in more than 20 countries, with some 200 in Korea.
In 2011, Morgan Stanley Private Equity Asia took control of Korean restaurant franchiser Nolboo for 120 billion won.
Private equity funds are aggressively expanding investment in food and beverage companies, betting on their strong profitability and sound cash-flows. Above all, it is convenient to resell them, analysts say.
More than five food and beverage makers have fallen into the hands of Korean or foreign private equity funds within the past year; these include KFC, Woongjin Foods, Hollys Coffee, Coffee Bean and BHC.
Currently, Now IB Capital is in talks with creditors of Kraze International, which is under court receivership, to take over the firm's handmade burger franchise brand Kraze Burger.
Market insiders say this trend can be seen as a dismal consequence of the increasingly uncertain future of the manufacturing business. A prolonged economic slowdown hit the bottom lines of major companies, denting their attractiveness as investment targets.
Food companies were not immune from this downturn. Yet they were affected less than others, reflecting their relatively stable profits. Another element making this area attractive is that food companies are purchasable for what investors describe as a "small" amount of money. Many of the food and beverage companies recently taken over by private equity funds were available for around 100 billion won ($97.9 million).
"It's less burdensome to make investment into these companies (compared with manufacturing companies), because the amount of money we put in initially is relatively small," an industry insider said. "For that reason, there are several private equity funds looking for an opportunity to buy food and drink companies in Korea."
In the latest case, CVC Capital Partners purchased Korea's KFC franchise from a subsidiary of Doosan Group for 100 billion won in May.
The deal was CVC's fourth in the restaurant area in 18 months as the London-headquartered private equity firm places its bets on rising disposable income and changing dining habits among Asian consumers.
"Asians used to eat at home, but we are seeing an increasing trend to dining out across the region. Quick dining venues like KFC are growing fastest in Korea," CVC's Seoul-based senior managing director Charles Huh was quoted as saying in a report. Doosan previously sold its Burger King business to local private equity firm Vogo for 110 billion won in 2012.
In September, a consortium led by Korea's Mirae Asset Global Investments acquired The Coffee Bean & Tea Leaf.
"We have followed The Coffee Bean for many years, in particular its rapid expansion in Asia, and have been impressed by the strength of the brand and its connection with its consumer base," HY Kim, managing director at CDIB Capital, a member of the consortium, was quoted as saying in a report. "We believe that the company's authentic Southern California brand heritage and global resonance provides a strong base for the future."
Founded in 1963, the coffee franchise has over 900 outlets in more than 20 countries, with some 200 in Korea.
In 2011, Morgan Stanley Private Equity Asia took control of Korean restaurant franchiser Nolboo for 120 billion won.
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