September 5, 2016

Carlyle Group and TPG Capital are partnering with strategic Chinese state-owned companies to position themselves to bid for McDonald’s units in China and Hong Kong. Meanwhile, Carlyle is also positioning to bid on McDonald’s outlets in South Korea.

China and Hong Kong

Sources revealed to Reuters that the deal for the China and Hong Kong businesses would be valued at between $2 billion and $3 billion, and that the private equity groups are tying up with domestic bidding partners as significant minority stakeholders in order to better appeal to McDonald’s desire for long-term partners rather than private equity firms that will look to exit in the short term. Carlyle is reportedly partnering with China’s CITIC Group while TPG has is partnering with Beijing Capital Agribusiness Group, which is McDonald’s existing China partner.

Other rivals expected to bid for the China and Hong Kong units prior to the mid-September deadline are China Cinda Asset Management Co., Beijing Tourism Group and Sanpower Group – a private technology and real estate firm.

South Korea

Separately, the Carlyle Group has also partnered with South Korea-based dairy group Maeil Dairy Industry Co. to bid for the South Korean McDonald’s operations in another deal worth $535 million.

Originally expecting to bid on its own, Maeil Dairy reportedly partnered with Carlyle upon JP Morgan’s suggestion, reports Korean Investors.

Rival bidders for the South Korean McDonald’s business include KG Group, the holding company of a South Korean mobile transaction firm and its partner NHN Entertainment Corp – a gaming and online payment company, and the parent company of CJ Corp. which has already placed a preliminary bid.

However, it is rumored that Carlyle will be the preferred bidder by McDonald’s, which wants to sell its total 2,800 stores in China, Hong Kong, and Korea as a packaged deal.

McDonald’s Seeks Competitive Advantage

In March of this year, McDonald’s announced that it would be looking for strategic partners that would enhance its competitive advantage in its key growth markets of China, Hong Kong and Korea, add capital resources to invest in expansion and modernization, and which would enable localized decisions regarding growth initiatives. Under this plan, McDonald’s is shifting to a less capital-intensive franchise business model and is offering buyers a 20-year franchise with the option for a 10-year extension.

“Asia represents a significant area of opportunity for McDonald’s to blend our global quality standards with local insights and expertise from partners who share our vision and values,” said Steve Easterbrook McDonald’s President and CEO in a company statement. “This will allow McDonald’s to accelerate our growth and scale faster across diverse markets placing us closer to our customers and the communities we serve.”

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Lynda Kiernan