Bain Capital mulls acquiring stake in Outback Korea

An Outback Steakhouse restaurant in Pohang, North Gyeongsang Province / Korea Times file

By Park Jae-hyuk

Bain Capital has been mentioned as one of the strongest candidates to acquire Outback Steakhouse Korea from SkyLake Investment, because the U.S. private equity firm (PEF) is seriously reviewing its plan to buy a controlling stake in the Australian-themed casual dining restaurant chain's Korean operation, according to industry sources, Sunday.

Sources said Bain's Korean office is looking for a domestic partner for acquisition financing, since it has been shortlisted for the main bid and has finished a management presentation.

Bain has never invested in restaurant chains here, but its global headquarters and Catterton Partners had jointly acquired Bloomin' Brands in 2007 and exited the U.S. owner of the Outback brand in 2015.

Based on its global headquarters' understanding of the restaurant industry, Bain seems to be trying to achieve economies of scale here by acquiring Outback Korea and additional local food franchises. The lowered valuation of restaurant brands after the spread of the COVID-19 pandemic is expected to help Bain accomplish the goal.

Bain has expanded its presence in the Korean market, participating in various buyout deals.

It joined hands with Goldman Sachs in 2016 to acquire a 60 percent stake in Carver Korea for 430 billion won ($357 million). They sold the cosmetics firm to Unilever for 2.27 billion euros ($2.6 billion) the following year, so Bain presumably earned 1.5 trillion won from the deal. It also took over a controlling stake in a botulinum toxin producer Hugel for 930 billion won in 2017.

But some observers say it is still uncertain whether or not Bain would complete the Outback Korea takeover, considering it previously dropped out of several bids in Korea.

The company dropped out of the bids for Nexon, Coway and Tailim takeovers last year.

As for the Coway and Tailim deals, Bain withdrew from the bids after it was shortlisted for the main bids. During the Nexon deal, it was the first main bidder to drop out, among Kakao, Netmarble, MBK Partners and Kohlberg Kravis Roberts & Co. (KKR).

If Bain fails to find a partner that wants to form a consortium with it and take Outback Korea at the time of Bain's exit, the PEF will not continue its efforts to acquire the brand, according to the observers.

It is also expected to withdraw from the takeover bid for Outback Korea, if the seller demands a higher price than its estimation.

The restaurant chain's enterprise value is estimated at around 260 billion won, as its sales and operating profit last year jumped to 254.3 billion won and 16.7 billion won, respectively, from 195.5 billion won and 2.5 billion won in 2016 when SkyLake took over the entire stake in Outback's Korean subsidiary from Bloomin' Brands International for 57 billion won.

Closing underperforming stores and upgrading to a premium steak menu, SkyLake has reformed the brand that had suffered from the falling popularity of casual dining restaurants amid changing trends.

After seeing the earnings improvement, the Korean PEF selected Credit Suisse as the financial adviser to the sale of Outback Korea and opened the preliminary bid in late May. Samil PwC and Kim & Chang are in charge of accounting and legal advice for the deal, respectively.

According to industry sources, the preliminary bid attracted seven bidders, including Bain, Anchor Equity Partners, TA Associates and JP Morgan Asset Management. Both Anchor and TA have experience in acquiring food and beverage (F&B) franchises in Korea, as the foreign PEFs respectively took over A Twosome Place and Gong Cha Korea last year.

The main bid will likely take place next month at the latest.

The bidders have reportedly recognized Outback Korea for its delivery service it started in August last year, as it enabled the restaurant chain to see better-than-expected earnings in the first half despite COVID-19-triggered conditions.

But there still exists skepticism about Outback Korea.

An executive of one of Korea's leading PEFs said restaurant franchises are not attractive enough to make investments, because trends in the domestic F&B market are changing too quickly.

Analysts also expect PEFs will face problems selling their food franchises because of rapid minimum wage hikes and the economic slowdown, both of which have reduced the attractiveness of investing in restaurant franchises.

“Due to soaring rents, in addition to surging minimum wages and interest costs, restaurants have faced intensifying financial difficulties,” Kiwoom Securities analyst Park Sang-joon said in a report.

Morgan Stanley PE, which bought Nolboo for 120 billion won in 2011, has not been successful in making an exit from the Korean-style restaurant brand for eight years, which is far longer than the average exit period of three to five years. Affirma Capital, which was formerly Standard Chartered Private Equity, failed in its attempt to exit Mad for Garlic in 2018.