[PE Now] F&B Companies' Second Attempt at Sale: The Formula for Successful Deals

Another Attempt at Sale for Mom's Touch and Others
Stable Cash Flow Is Essential
Scalability Through Overseas Expansion Will Be the Deciding Factor

Restaurant companies are increasingly entering the mergers and acquisitions (M&A) market. The range of companies is diverse, including not only those specializing in hamburgers and chicken but also dessert companies. Industry experts believe that only companies with stable cash flow and growth potential, such as the ability to enter overseas markets, are likely to complete successful M&A deals.

According to the investment banking (IB) industry on May 18, numerous food and beverage (F&B) companies are looking for buyers in the M&A market. Private equity fund (PEF) manager KL&Partners sent out a request for proposal (RFP) last month to select a sales advisor for Mom’s Touch. The chicken franchise Norang Tongdak (Norang Food) is also among the key companies on the market. Q Capital Partners recently ended its sales advisor contract with Samjong KPMG and is reportedly considering appointing a new advisor. For Pizza Nara Chicken Gongju, which operates both pizza and chicken businesses, the operator Richbeam is in contact with potential buyers as it seeks to sell its management rights. Recently, there have also been reports concerning the possible sale of BKR, which owns Burger King Korea and the coffee brand Tim Hortons.

What these companies have in common is that each has already attempted at least one sale, but disagreements over company valuation between sellers and potential buyers have prevented deals from closing. KL&Partners acquired the founder Hyun-Sik Jung’s stake in Mom’s Touch in 2019, secured management rights, and then purchased additional shares in 2022, delisting the company through a public tender offer. Although they attempted to sell the company once after that, the deal failed. Norang Tongdak also entered into negotiations with Philippine food service company Jollibee last year, but the talks fell through. Pizza Nara Chicken Gongju’s negotiations also collapsed during the process.

Stable cash flow is a strength, but actual performance must match

The case of dessert company Yoajeong illustrates how stable cash flow—a key strength of F&B businesses—can be crucial in M&A deals. F&B companies can achieve revenue growth through food sales without long investment periods and are less susceptible to volatility than other industries. This allows for stable cash generation. In March, one of the fund managers (GPs), J&Partners, and the buy-side, Alma Partners, failed to reach a deal for a 100% stake in Yoajeong. It is reported that the two sides could not agree on Yoajeong’s valuation.

According to Yoajeong’s audit report, the company’s sales in 2023 grew significantly to 59.7 billion won, up from 47.1 billion won in 2024, and operating profit reached 13.4 billion won, showing continuous growth. However, while cash generated from operations was 6.5 billion won, the company paid out 9.6 billion won in interim dividends. As a result, Yoajeong’s actual cash holdings declined from 2.4 billion won to 600 million won, as dividend payments exceeded the company’s earnings.

Other F&B companies on the market have more stable cash flows than Yoajeong, but the large scale of their dividend payouts could pose obstacles. Mom’s Touch generated 87.4 billion won in operating cash last year, but 67.5 billion won was returned to shareholders through a 47.5 billion won dividend and a 20 billion won capital reduction. Norang Tongdak (Norang Food) had 10.7 billion won in operating cash flow, yet Q Capital Partners collected 22 billion won in dividends, more than double the company’s net profit of 10.6 billion won. Pizza Nara Chicken Gongju (Richbeam) generated 16.2 billion won in operating cash flow but paid out an excessive 23 billion won in dividends. As a result, year-end cash declined from 2.2 billion won to 1.2 billion won.

Expansion potential, such as overseas entry, is also crucial

Some point out that in addition to financial performance, the success of F&B M&A deals hinges on expansion potential, such as entering overseas markets. Most of the successful M&A deals since last year have been recognized for their growth potential either domestically or internationally. Last year, global PEF manager Carlyle Group acquired KFC Korea. As Carlyle had already acquired KFC Holdings Japan in 2024, they are expected to generate synergy in both Korea and Japan. The case of Five Guys, an artisan burger brand, is similar. H&Q Korea was selected last year as the preferred bidder to acquire FG Korea, the Korean operator of Five Guys. FG Korea reportedly holds not only the Korean business rights but also the development rights for the Japanese market granted by Five Guys headquarters. Burger King Japan, which Affinity Equity Partners sold to Goldman Sachs, is also based on overseas market potential. A source from the IB industry commented, “Due to changes in population structure, domestic market growth is limited across all sectors, making overseas expansion potential vital.”

Emphasizing the unique characteristics of Korean cuisine is also a point of interest in the M&A market. UCK Partners recently signed a stock purchase agreement (SPA) to acquire management rights in seasoned seaweed producer Manjeon Food. In February, the company also acquired a 49.9% stake in another seaweed producer, Haenong, and continues to invest in the seaweed industry. Seaweed is advantageous as an export item, with steady demand. Another IB industry insider explained, “Fifty percent of seaweed production takes place in Korea, and as more foreigners consume it, there is ample opportunity for growth overseas.”

The case of Bonchon, which VIG Partners is preparing to sell, is also noteworthy. Bonchon, which specializes in Korean fried chicken, operates over 300 stores worldwide. Of these, 80 are in the United States and 250 are in Southeast Asia; there are none in Korea. The industry evaluates Bonchon’s success as stemming from effectively leveraging the unique qualities of Korean cuisine. An IB industry source said, “A decade ago, Korean food in the U.S. was about as well known as Ethiopian food, but now its recognition is similar to that of Japanese cuisine. While growing recognition is important, the distinctiveness of Korean food is an even more significant factor than the global attention on Korean culture itself.”

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