By LI Ye
International hamburger giant McDonald's is buying investment house Carlyle's stake in its China business. The Golden Arches is increasing its minority share in the operation from 20 percent to 48 percent ownership.
"We believe there is no better time to simplify our structure, given the tremendous opportunity to capture increased demand and further benefit from our fastest growing market's long-term potential," McDonald's CEO Chris Kempczinski said in a statement released on Wednesday night.
Citic sits tight
In 2017, the fast-food chain sold control of its restaurants in the Chinese Mainland, Hong Kong and Macao to Carlyle and a consortium led by State-backed conglomerate Citic for US billion (15 billion yuan). Citic will retain its 52 percent stake in the business. The exact amount of the transaction has not been revealed.
Carlyle was one of the earliest private equity firms to enter China, with consumer and retail being its first focus. It has made notable investments in sportswear through Xtep and cosmetics via Perfect Diary, along with battery-sharing startup Energy Monster.
The company set a five-year goal in 2017 which included double-digit sales growth. By 2022, the goal was to reach 4,500 restaurants, with 45 percent located in third and fourth-tier cities. Over 75 percent of restaurants were to offer delivery services.
Mission accomplished
McDonald's now has 5,600 restaurants, compared to 4,900 in the same period of last year, and double the number in 2017. China remains McDonald’s second largest, as well as the fastest growing, market.
For private equities like Carlyle, it is a common practice to withdraw after investment goals are met. Meanwhile, it seems like the right time to cash out.
On November 7, Carlyle announced revenue of US$777 million, below expectations of $800 million. Net profit though, was down 71 percent compared to the same period last year. Income from investments exited in Q3 plummeted by 76 percent.
Aiming for 10,000
However, the exit by Carlyle may not have a significant impact on McDonald's China business. The transaction did not alter Citic's holding and it remains the controlling shareholder. McDonald's said that this transaction would enable better decision-making by the board, and bring about more stable and sustainable resource allocation.
Phyllis Cheung, CEO of McDonald's China, has emphasized opening 10,000 restaurants by 2028 in various public forums over the past six months. That goal will not change.
