'Cash Cow' Dividends Grow Larger... Private Equity Funds Fatten Up on F&B

BHC and Outback Paid Over 550 Billion Won in Dividends Over Three Years

MegaMGC Coffee's Dividend Payout Ratio Jumps 30 Percentage Points in One Year

Mom’s Touch Executes Both Dividends and Capital Reduction

Food and beverage (F&B) companies owned by private equity funds (PEFs) expanded their dividend payouts last year. Even amid an economic slowdown, F&B companies, which maintain relatively stable cash flows, are serving as “cash cows” for private equity funds. Following a series of reports at the end of last year and the beginning of this year about private equity funds selling off F&B brands, it has been reported that brands such as Mom's Touch and Burger King have also been put up for sale, raising the possibility of major deals being completed within the year.

Graphic created using domestic food and beverage (F&B) brand logos by ChatGPT

According to the electronic disclosure system on May 6, Dining Brands Group, which owns BHC and Outback Steakhouse Korea, expanded its dividend payouts. Dining Brands Group, which owns the chicken brand BHC, paid out 140.8 billion won in dividends last year (on a separate basis), a 15.4% increase from 122 billion won the previous year. While the company’s payout ratio—the proportion of net income paid out as dividends—decreased from 85% to 70%, the overall dividend amount increased as BHC posted record sales exceeding 600 billion won for the first time and net income jumped 40% year-on-year.

Outback Steakhouse Korea, a subsidiary of Dining Brands Group, also increased its dividend from 44.7 billion won in 2024 to 62.1 billion won last year. Outback’s payout ratio exceeded 100% for two consecutive years, rising from 105% in 2024 to 150% last year. This means the company paid out dividends greater than its net profit for the year by utilizing retained earnings. Dining Brands Group is owned by MBK Partners, and the cumulative dividends paid out by Dining Brands Group (separate) and Outback over three years since 2023 have exceeded 550 billion won.

Mega MGC Coffee paid out 77.3 billion won in dividends last year. Dividends increased by about 27 billion won year-on-year, from 50.2 billion won in 2024, and the payout ratio surged from 61.48% to 91.73% over the same period. This expansion in dividends appears to be due to growth in both sales and operating profit. Mega MGC Coffee was acquired in 2021 by the WooYoon Consortium, established by private equity fund Premier Partners and Kim Daeyoung, CEO of food distribution company Boratial. Mega MGC Coffee, whose sales grew by more than 30% last year, recorded a gross profit margin of 36.38%, significantly higher than rivals Paikdabang (20.7%) and The Venti (30.6%).

In addition to dividends, private equity funds can also secure cash through capital reductions with consideration, which involves reducing capital and the number of shares and returning funds to shareholders.

Mom's Touch has carried out both dividend payouts and capital reductions with consideration for three consecutive years. Dividends grew from 15.5 billion won in 2024 to 47.5 billion won last year, while capital reductions with consideration increased from 15.6 billion won to 20 billion won over the same period. In 2023, the company paid out 66 billion won in dividends and conducted a 21 billion won capital reduction with consideration. As a result, more than 180 billion won in cash has been distributed to shareholders over the past three years. During this period, Mom's Touch’s sales rose by 30% and operating profit by 59%. The largest shareholder of Mom's Touch is KL&Partners, a domestic private equity fund manager, which is reportedly pursuing a sale within the year.

Other F&B brands managed by domestic private equity funds, such as Sulbing and Gong Cha Korea, both operated by UCK Partners, also paid out dividends last year. Sulbing reduced its dividend from 30.2 billion won in 2024 to 22 billion won last year, but its payout ratio exceeded 200%, meaning it paid out more than twice its net profit for the year as dividends. Gong Cha Korea increased its dividend from 900 million won to 3 billion won over two years and carried out a 6 billion won capital reduction with consideration in 2024.

Twosome Place, managed by U.S.-based private equity firm Carlyle Group, conducted a 38 billion won capital reduction with consideration in 2024, followed by an additional 20 billion won capital reduction last year. Carlyle Group acquired KFC Korea and, after signing a stock purchase agreement (SPA) with Orchestra Private Equity in December last year, recently completed the related procedures.

F&B companies have long been viewed in the market as investment destinations capable of generating stable cash flows. The logic is that, even in tough economic times, eating and drinking are essential, and sales can be increased to a certain extent even with limited investment. This is the background behind the active mergers and acquisitions (M&A) of F&B brands such as Five Guys, KFC Korea, and Mammoth Coffee at the end of last year and the beginning of this year.

However, there has been criticism that when private equity funds own F&B companies, they tend to raise prices to boost profitability, increasing the burden on consumers. Moreover, there is a growing view that the market is entering a “cautious mode” due to high inflation, economic recession, intensified competition resulting from market saturation, and declining profitability. An official in the restaurant industry commented, “Given the nature of private equity funds, which aim to raise corporate value within a set period and exit by recovering their investments, they will seek to manage both profitability and scale-up. It is highly likely that business structures will be designed with a focus on securing profit at the headquarters level.”

This content was produced with the assistance of AI translation services.