Carlyle Exits China McDonald’s Stake With 6.7 Times Return
McDonald’s offer for Carlyle’s stake trumped an earlier sale plan.
(Bloomberg) -- Carlyle Group Inc. agreed to sell its entire stake in McDonald’s Corp.’s China operation to the hamburger chain operator for about $1.8 billion, reaping a 6.7 times return in one of the investment giant’s best exits from the Asian nation.
McDonald’s offer for Carlyle’s stake trumped an earlier sale plan, according to people familiar with the matter. The transaction was announced on Monday without mentioning the price. Carlyle was originally planning to offload part of its 28% stake along with a holding by Citic’s private equity arm Trustar Capital in a $4 billion deal that involved setting up a new vehicle while attracting fresh capital.
A media representative at Carlyle declined to comment on the sale price and investment return.
Under Carlyle’s six years of ownership, the fast-food chain ramped up store openings and delivery services in its second-biggest market. Selling the trophy asset ranks among other successful exits for the US firm in China, including its sale of China Pacific Insurance (Group) Co., which was acquired in 2005, and display-advertising provider Focus Media Holding Ltd. in 2018.
It’s also a coup at a time when US and European investors hold off putting money into China amid rising geopolitical tensions and a sluggish economy. Private equity firms have also had to contend with a slump in public markets that has subdued asset valuations, making it difficult to offload once-promising investments in the country.
Chicago-based McDonald’s will increase its stake in the China business to 48% from 20% as part of the deal, according to a statement Monday. The Citic Consortium, a Chinese conglomerate, will continue to hold 52%.
China has grown to be McDonald’s second-largest market, with the chain doubling its locations there to more than 5,500 since 2017. The goal is for more than 10,000 restaurants by 2028.
The firm has implemented contactless pickup and delivery of Big Macs, fries and other menu items across China and the delivery services kept growing in the country even during Covid lockdowns.
“Together, we transformed the business, accelerating its growth profile and revolutionizing its digital marketing and operational capabilities,” X.D. Yang, chairman of Carlyle Asia, said in the statement.
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Carlyle and Trustar Capital earlier approached financial investors including GIC Pte and Mubadala Investment Co. — sovereign wealth funds from Singapore and Abu Dhabi respectively — for the stake sale, Bloomberg News reported in July. They were seeking a valuation of the entire business at up to $10 billion including debt, and aimed to finalize an agreement with investors in the fourth quarter.
McDonald’s sold about 80% of its China and Hong Kong operations for around $1.7 billion in 2017, valuing the business at as much as $2.08 billion.
Private equity firms have amassed more than $1.5 trillion of assets in China in the past two decades and had been counting on hefty returns from selling first-time shares at exuberant valuations. After years of growth, some institutional clients, such as US pension funds, have reached the limit of what they’re willing to allocate to the sector, making it harder to raise fresh funding in an era of rising interest rates.
Secondary buyers are also finding it increasingly challenging to price risk. Deals in China involving private equity firms are on track to slide for a second straight year, after plunging by 50% last year, according to data compiled by Bloomberg.
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