A Happy Deal: McDonald’s China set to sell for up to $3bn

In a deal that could fetch up to $3bn, McDonald’s China is set to be purchased by Citic Group Corp, the Chinese conglomerate, coupled with a US-based private equity group Carlyle.

The announcement follows a mixed 2016 for the China franchise of the world’s largest fast-food chain, after struggling to attract investors when it announced it was offloading its Chinese locations in the first half of last year. The deal will see McDonald’s sell its 2,800 restaurants in China and Hong Kong – a market in which the chain has struggled to maintain its hold over the past year. McDonald’s Chinese locations suffered a food safety scandal in 2014, when expired meat was exposed as being repackaged, and since then the famed golden arches have seen market share slip in the rapidly expanding fast-food market in China.

The deal couldn’t be better news for the fast-food giant, as under the franchise model McDonald’s stands to receive generous royalty fees. The franchise-only model in China is a crucial part of McDonald’s strategy in Asia; by seeking a buyer who knows and understands the Chinese market well, the chain is better situated to open the projected 1,000 restaurants in five years across China.

However, Citic Group and Carlyle now face the challenge of increasing McDonald’s Chinese market share. Growing competition from Chinese fast-food chains and more health-conscious and digitally savvy consumers have shaped the direction of the fast-food restaurants in China and Asia as a whole. McDonald’s is also selling its restaurants in Korea, although the race to acquire the franchised restaurants came to a halt last September when the frontrunner, CJ Group, dropped out of contention.

2016 was a record year for M&A across Asia, dominated in particular by China which led the way for both outbound and domestic deals. The McDonald’s deal may not have been the smoothest acquisition of the past year, and is yet to be completed as we go into 2017, however it demonstrates a continued appetite for investment within China.

McDonald’s China has yet to fully recover its reputation from its expired meat repacking scandal, however its rumoured $3bn price tag and discussions with keen investors in the second half of 2016 have positioned the fast-food chain as an attractive and exciting investment opportunity in East Asia. A deal is still to be confirmed for its Korean counterpart, and while Citic and Carlyle face challenges ahead, the fast-food industry in China is certainly booming.

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Tags: Benchmark International, Carlyle, Deal Making, mergers, Acquisitions, Asia, Blog, China, CITIC, Citic Group Corp, McDonald's, Mergers and Acquisitions

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