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Burger King's Korea, Japan operations up for sale

Affinity Equity Partners eyes exiting the franchise's operations in two Asian countries

By Sep 06, 2021 (Gmt+09:00)

(Courtesy of Burger King)
(Courtesy of Burger King)

Affinity Equity Partners is putting Burger King's operations in South Korea and Japan up for sale, after the US hamburger franchise overtook its bigger rival McDonald's in Korea by the number of outlets for the first time.

The Hong Kong-based private equity firm is now looking for a sale advisor of the franchise's operations in the two Asian countries, which it had acquired for a combined 220 billion won ($190 million) between 2016 and 2017, according to investment banking sources on Sunday. 

Restaurant Brands International Inc., a Canadian-American holding company, runs the fast food company's global operations.

In 2016, Affinity had acquired 100% of the South Korean operations of Burger King for 210 billion won from Seoul-based VIG Partners, tapping its fourth Asia fund that raised 4.8 trillion won in 2014.

The following year, it took over the management rights of Burger King's Japanese operations from South Korea's Lotte Group for about 10 billion won.

Since its acquisition, Affinity has focused on the franchise's expansion by increasing the number of its outlets. Burger King, known for its signature Whopper burgers, runs 411 franchise restaurants in South Korea as of end-March of this year. That outnumbered McDonald's 404 outlets in the country.

Its aggressive expansion boosted 2020 sales at the South Korean operations by 14% year on year to 571.3 billion won, outpacing McDonald's 7% growth in the country over the same period.

The launch of new and premium meals drove its sales higher, alongside trendy marketing and TV commercials using Korean celebrities. Among its popular premium menus are the Shrimp Whopper featuring a beef patty and shrimp and the Red Crab Whopper topped with a fried crab cake, as well as the Guinness Whopper, which includes the strong Irish beer as an ingredient in its burger buns and sauce.

But cutthroat competition among fast-food companies, including Korea's homegrown Mom's Touch, has undermined profit margins. Last year, Burger King Korea's operating profit margin more than halved to 8.1 billion won from 18.1 billion won the previous year. The 2019 result marked its best profit margin since Affinity Equity's 2016 acquisition. 

For a potential buyer, the decline in profit margins might offset its strong brand awareness and steady growth in South Korea, the sources said.

In 2019, the private equity firm retrieved part of its investment in Burger King through dividend income and by doubling its debt financing volume from 80 billion won. 

Affinity Equity is among the most aggressive investment firms in South Korea. As the No. 2 shareholder in SSG.COM, the e-commerce brand of Korea's retail giant Shinsegae Group, it acquired the country's largest recruitment portal JobKorea from Korea-based private equity fund H&Q for about 800 billion won earlier this year.

Last month, a consortium of Affinity, GS Retail Co., and British investment firm Permira sealed a 800-billion-won deal to buy South Korea’s second-largest food delivery platform Yogiyo from Germany’s Delivery Hero SE.

Write to Jun-ho Cha at chacha@hankyung.com

Yeonhee Kim edited this article.

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