Why does sale of Mom's Touch attract more attention than peers?
A promotional image from Mom's Touch / Courtesy of Mom's Touch
Local chicken burger franchise's profitability exceeds those of rivals
By Anna J. Park
While most of the major burger franchises in Korea are also currently up for sale in the M&A market, local chicken burger franchise Mom's Touch is drawing the most attention from potential buyers for its superior profitability.
The local burger franchise business has been posting better operating profit rates than its main competitors ― the Korean operation units of McDonald's, Burger King and KFC ― which are all up for sale as well.
According to financial industry officials, Friday, KL & Partners, the local private equity firm that acquired Mom's Touch in 2019, selected Bank of America Merrill Lynch on Thursday as its main M&A advisory firm for managing the sale of the franchise operation.
The global investment bank's track record for successful M&A deals as well as its networking capacity to attract worldwide investors are said to be the key reasons behind the appointment. Planning to complete the sale process by the end of the year, KL& Partners aims to hold the bidding process sometime around October.
The local private equity firm currently holds more than a 95 percent stake in Korea F&B Holdings, a special purpose company (SPC) set up during its 2019 takeover of Mom's Touch. After initially purchasing a 56.8 percent stake in Mom's Touch in late 2019, it increased its stake in the burger franchise to nearly 100 percent earlier this year, with additional stake purchases from minor shareholders during a voluntary delisting process of Mom's Touch from the Kosdaq market in May.
Following the voluntary delisting, which aimed at minimizing external interferences, the franchise company has been focusing on expanding its business, while raising its corporate value.
At the time of the 2019 deal, the corporate value of the burger franchise business was estimated at around 350 billion won ($267 million), with an annual operating profit of 27.2 billion won. The burger franchise's profitability has since been on a steep uptrend, with its annual operating profit soaring to 40.2 billion won as of the end of last year.
This year's operating profit is expected to hit some 70 billion won, as the company's EBITDA (earnings before interest, tax, depreciation and amortization) for the first half of this year is expected to exceed 30 billion won.
Market watchers expect that major private equity firms such as MBK Partners, Carlyle Group and Hahn & Company could be potential buyers of the franchise business, given their history of taking over other food and beverage brands. U.S.-based Yum Brands, the owner of Pizza Hut, Taco Bell and KFC, has also been mentioned as a potential buyer, as has Golden Gate, Vietnam's largest food & beverage brand.
“While the annual revenue of Mom's Touch trails behind those of its competitors in the Korean market, such as McDonald's 867 billion won and Burger King's 678 billion won, the local brand has the highest operating profit margin. The company's profitability to generate cash as well as its number of branches, which is the highest among burger franchise brands nationwide, are obviously selling points,” a market insider said.
He added that the franchise's successful sale in the M&A market will be dependent on the firm's ability to persuade potential buyers of its additional growth potential and further improvement of its profitability.