The MCD China Exit
Carlyle Group & Citic Ltd and Citic Capital Holdings agreed to buy McDonald’s China and Hong Kong restaurants in 2017. Last week that Carlyle and the two Citic entities said they were looking to sell down their stakes in McDonald’s China. We see the move is consistent with the current climate, where YUMC and SBUX have said sales are still 20% below 2019 levels and the economy is slowing. The partnership represented one of Carlyle’s most significant deals in China when it was first announced, demonstrating the “confidence in the strength of the Chinese consumer,” Carlyle managing director X.D. Yang said at the time. Disgraced MCD CEO Steve Easterbrook also said at the time that China would soon become the company’s largest market outside of the U.S. But five years later, the market hasn’t been as hot as expected, chilled by three years of onerous Covid restrictions. It seems that a difficult period caused a partnership that once seemed rock-solid to show signs of cracks, which were evident in last week’s reports that Carlyle and Citic Capital were seeking a partial exit. Other factors contributing to the exit are a slowing Chinese economy, a sluggish IPO market, and difficulties created by heightened geopolitical tensions. Alsop Carlyle made its 2017 investment in McDonald’s China from its Carlyle Asia Partners IV fund, a $3.9 billion fund that closed its fundraising in 2014. Carlyle is likely facing rising pressure to cash out of their investments and return the profits to the funds’ limited partners. Carlyle and Trustar Capital, Citic Capital’s private equity affiliate, are setting up a new vehicle to execute their planned partial exit, Bloomberg News reported. The article said that Singapore’s GIC Pte and Abu Dhabi’s Mubadala Investment sovereign wealth fund were approached about becoming potential new investors. McDonald’s China told Reuters that the partnership’s shareholding structure will not change. Carlyle owns 28% of the McDonald’s restaurant business in China and Hong Kong, while Trustar owns 42%. Citic Ltd. owns 10%, and McDonald’s owns 20%.
According to the Bloomberg report, Carlyle and Trustar are reportedly seeking to raise $4 billion in their latest deal, which would value the entire McDonald’s China restaurant business at up to $10 billion, including debt, up from $2 billion the business was valued at when the strategic partnership was formed in 2017. The McDonald’s China business has 5,400 stores, up from 2,500 when the partnership was signed. McDonald’s doesn’t disclose the performance of businesses with a minority stake, but in its 2022 annual report that earnings from China dropped due to Covid restrictions. The infusion of new capital will help battle Yum China which owns 13,000 restaurants across China, including over 9,000 KFCs, with plans to add up to 1,300 new stores this year. Over the long-term YUMC is targeting 20,000 stores in the country. By comparison, McDonald’s aims to roughly double its current store count in China to around 10,000.
CMG Global Expansion
The last LTO by the company was billed as a global launch, despite the company only having 50 stores over seas. Now we have an indication of how the company is going to expand expand overseas. Will the company keep an asset-light strategy?
Today CMG announced it had signed its first-ever development agreement to open restaurants in the Middle East and accelerate its international expansion efforts. In partnership with Alshaya Group, the Company will open new restaurants in Dubai and Kuwait early next year before expanding further across the region. "Leveraging Alshaya's market expertise will enable us to quickly gain access to these vibrant economies," said Chairman and Chief Executive Officer Brian Niccol. "We are excited to offer guests in the Middle East our responsibly sourced, classically-cooked real food. We look forward to furthering our purpose to cultivate a better world in this new territory." Chipotle's newly formed business development group, led by Chief Business Development Officer Nate Lawton, is exploring opportunities for growth via outside partnerships.
Chipotle's existing international portfolio of owned and operated restaurants includes 33 locations in Canada; 15 in the United Kingdom, with three more openings this summer; six in France; and two in Germany. In North America, the Company owns and operates over 3,200 restaurants and targets 8 to 10% growth annually for the foreseeable future, with at least 80% including a Chipotlane. Chipotle plans to open more than 255 new restaurants this year, with a long-term target of 7,000 locations in North America.
Alshaya has a strong portfolio of Restaurant/Food brands
