Sales of Burger King Korea, Mom's Touch in limbo

This combined photo shows a consumer ordering a hamburger at a Burger King restaurant in Seoul, left, and a Mom's Touch restaurant near Seoul City Hall. Newsis

Korean units of McDonald's, KFC also considered overvalued

By Park Jae-hyuk

Uncertainties have been growing over the sales of the Korean units of McDonald's, Burger King and KFC, as well as Mom's Touch, as the current owners struggle to find interested buyers, according to industry officials, Monday.

Since their current owners put the fast food franchises up for sale earlier this year, capital market insiders have regarded the firms as overvalued.

As investors remain reluctant to offer higher prices amid sharply rising interest rates and an economic downturn, Affinity Equity Partners is said to have decided recently to delay the sale of its stakes in Burger King's Korean and Japanese operations until the second half of next year.

The Hong Kong-based private equity firm (PEF), which acquired Burger King's Korean subsidiary in 2016 and its Japanese subsidiary the following year, has been trying since late last year to sell the two subsidiaries for a combined 1 trillion won ($759 million), after hiring Goldman Sachs as an underwriter for the deal.

Although it was reported that the seller shortlisted a few potential buyers ― including BHC Group, KKR and Elevation Equity Partners ― after a preliminary bid in March, M&A market insiders have expressed skepticism about the potential acquisition of the hamburger chain by a PEF, pointing out that it would be difficult to raise its valuation any further until divestment.

KL & Partners also reportedly changed its underwriter for the sale of Mom's Touch recently to Deutsche Securities from BofA Securities, in order to sell the chicken sandwich franchise for 1 trillion won. The Korean PEF has been confident about finishing the deal by the end of this year, but questions remain over the selling price.

“PEFs will continue trying to sell their fast food franchises for higher prices,” a top executive at another local PEF said. “Considering their earnings, however, most franchises seem overvalued.”

McDonald's Korea, which is also up for sale, is reportedly priced at 500 billion won. However, the U.S. hamburger franchise's Korean operation has been suffering accumulating losses for the past three years.

Industry officials expect the sellers to face growing pressure to cut their selling prices, once KG Group finishes selling KFC Korea to Orchestra Private Equity for 60 billion won early next year. According to industry officials, the group had initially sought to sell the fried chicken franchise for 100 billion won, but the domestic PEF convinced the seller to lower the price.

Suh Yong-gu, a professor of marketing at Sookmyung Women's University, pointed out that premium burger brands entering the Korean market will make it more difficult for McDonald's and other fast food chains to attract potential buyers.

Amid the intensifying competition, Good Stuff Eatery left the Korean market just five months after it opened its first restaurant here. Shinsegae Food also plans to close all restaurants of Johnny Rockets in Korea by the end of next year.