The SPC was formed in 2018 by BHC Chairman Park Hyun-jong, MBK Partners’ inaugural Special Situations Fund (SSF) and Elevation PE, formerly known as Rohatyn Group (TRG), to acquire the chicken franchise for 680 billion won. Back in 2013, Elevation PE alone had acquired BHC from another Korean chicken company for about $100 million.
MBK’s SSF, which raised $850 million in 2018, reportedly covered the mezzanine tranche of the SPC.
OTPP valued the unlisted BHC at 1.8 trillion won, almost three times what the SPC paid two years ago. Elevation PE is fully exiting from the Korean franchise with hefty returns.
Under the agreement, OTPP, MBK Partners and BHC Chairman Park are committing a combined 965 billion won as co-investors to a new SPC that will own the crispy chicken brand, while raising an additional 850 billion won in debt financing. The existing investors – MBK SSF and Chairman Park – will not inject additional capital into BHC.
NH Investment & Securities, Korea Investment & Securities and Samsung Securities participated in the debt financing.
In 2012, OTPP had acquired a 7.62% stake in unlisted Kyobo Life Insurance, South Korea’s third-largest life insurer. It sold part of the stake to a foreign PEF in 2016.
SWEET AND CHEESY RECIPES
Under the leadership of Chairman Park since 2013, the chicken franchise leapt to second place from 10th in South Korea’s crowded fried chicken market.
In 2018, Park led the 680-billion-won management buyout of BHC, along with MBK and Elevation PE, from TRG. The deal marked the country’s biggest MBO at the time.
Park worked at Samsung Electronics and Samsung Everland, the country’s largest amusement park operator, as a sales and marketing manager during his 26-year stint at Samsung Group. In 2012, he moved to Genesis BBQ, then the owner of BHC.
The chicken franchise BHC now runs five franchised restaurant brands, including beef restaurant chains.
Park had focused on developing new menus and enhancing logistical efficiency, as well as serving diverse side dishes. BHC’s sweet soy sauce and cheesy chicken recipes – Macho King and Prinkle – became popular among teenagers and people in their 20s.
It runs 1,500 restaurants across the country, the second-highest number after BBQ as a chicken franchise.
BHC’s sales are similar to or slightly lower than its two close rivals, Kyochon and BBQ. But it far outstrips both in terms of EBITDA, a cash flow indicator.
This year it is set to post its highest-ever earnings, with EBITDA nearly doubling to 140 billion won from 85 billion won in 2017. Sales are expected to climb to 450 billion won from 330 billion won during the same period.
For the latest investment, OTPP applied the EBITDA multiple of 13, up from the 8 used for the 2018 MBO transaction.
South Korea’s fried chicken market has expanded at an average of 10% per year over the past five years, led by the growing delivery food market. Its market size has doubled to 8 trillion won this year in an extended pandemic era, compared to five years ago.The country’s food delivery services market has ballooned to 22 trillion won from 12 trillion won in 2015, according to McKinsey.The entrance of private equity firms has prompted consolidation in South Korea’s fried chicken market, fragmented by mom-and-pop outlets.Seoul-based PE firm Q Capital Partners acquired smaller chicken franchise Norang Tongdak for 70 billion won this year, with another PE firm Corstone Asia, after becoming the No. 2 shareholder in Genesis BBQ – once BHC’s owner – last year.The steady cash flow of crispy chicken brands has lured PEFs, along with their business growth potential.Kyochon F&B became the country’s first listed chicken stock after it went public on the Seoul bourse last month. It had pulled in a staggering $8.2 billion in deposits during its two-day public subscription. Its current market value is 530 billion won.
(Correction: The name of the investor has been corrected to the Ontario Teachers’ Pension Plan in the headline and first paragraph.)