Hamburger franchises face trouble in M&A market

It has been a while since major burger franchise businesses in Korea have been listed in the M&A market. Yet, generally, their corporate values are not well received by the market, sometimes failing to find new owners, even after attempts to do so.

According to the local investment banking (IB) industry, food and lifestyle group Good Food For Good (GFFG) has recently decided to sell burger franchise Downtowner. Downtowner opened up its first branch in 2016, operating seven shops under its direct control in mostly wealthy districts in Seoul.

GFFG, which owns 11 brands including popular donut franchise Knotted, explained that it is currently talking with potential buyers, hoping to focus on other businesses amid soaring inflation.

With Downtowner newly listed for sale, the list of burger franchises needing new owners has gotten even longer. Currently, McDonald’s Korea, Burger King, Mom’s Touch and Bas Burger have been up on the M&A market and are having trouble closing sales deals.

General inflation and personnel expenses are seen as major obstacles to the food industry’s outlook, and these burger businesses’ corporate valuations are on the decline.

For instance, the 100 percent stake in KFC’s operation in Korea was sold to Orchestra Private Equity (PE) earlier this year at the price of 55 billion won ($41.5 million), which is a lot lower than market expectations of some 100 billion won. KG Group, the previous owner of KFC’s Korea operation, purchased the global fastfood chain’s local business right at 50 billion won in 2017. Even after six years of profitable business, its market value has risen by only 10 percent, which is considered dirt cheap given the inflation during the past six years.

Likewise, McDonald’s Korea has also failed to reach a deal with the potential buyer, Dongwon Group, despite buoyed market expectations about the deal. Reportedly, the breakup of the deal is due to differences over the business’ market value. Dongwon Group suggested 200 billion won for the Korean franchise license. However, the two sides could not reach an agreement on the appropriate valuation, resulting in the breakup of the deal after three months of negotiation.