이 기사는 2020년 03월 02일 08:00 thebell 에 표출된 기사입니다.

Market watchers seem to be concerned about South Korea’s private equity (PE) firm KL&Partners’ ability to boost Haimarrow Food Service’s enterprise value while the PE firm’s acquisition of the fast-food chain is approaching the finish line.

M&A industry insiders are paying attention whether the relatively new local PE firm will be able to push ahead with its post-merger integration (PMI) plan on Haimarrow Food Service, the operator of the country’s famous fast-food chain Mom’s Touch.

Food and beverage (F&B) franchise is one of the most attractive investment opportunities for PE firms, although it is quite difficult to exit from the investments. Increasing single-person household will enable F&B franchises to generate stable earnings before interest, taxes, depreciation and amortization (EBITDA), but the industry’s trend-sensitivity can lower their enterprise value.

Mom’s Touch differentiates itself from competitors with relatively lower sensitivity to dining trend. Its main item is chicken, which costs less compared to other meat, and chickens are one the most popular platters in Korea.

However, Mom’s Touch also has potential problems that the industry has in common, including issues related to hygiene and quality of ingredients. In 2016, a woman lodged a complaint with the local prosecution against McDonald's, claiming that her daughter has permanently damaged kidneys after eating a Happy Meal burger served with an undercooked patty and the incident hit the entire fast-food industry.

KL&Partners plans to increase franchise stores in Seoul Metropolitan region, enter global markets especially Southeast Asia, and expand its food material distributing business to improve Haimarrow Food Service’s valuation. The PE firm reportedly expects Haimarrow Food Service’s EBIDTA to show explosive growth and collect almost half of its investments the following year, thanks to its new business plans. After that, the PE firm plans to recapitalize the company, restructure the financial planning and return money back to investors.

“Shinhan GIB has arranged a 100 billion acquisition financing for KL&Partners,” said an IB industry source, adding, “Considering a company can borrow around four to five times its cash flow, the buy-side is likely to secure money through recapitalization and distribute them to investors.”

In order for KL&Partners to materialize its plans, the PE firm should prove achievements during its PMI processes. The PE firm is likely to increase Mom’s Touch’s brand awareness by increasing sales promotion expenses and opening more franchise stores and directly-run stores.

(By reporter Rho Ar-rum)