Partners Group backs continuation vehicle for Korean restaurant brand

The target company – the second-largest player in Korea’s fried chicken quick service restaurant (QSR) space – has been in the MBK portfolio since 2018. However, the private equity firm invested through a mezzanine debt instrument from its debut special situations fund. The debt was converted to equity when Ontario Teachers’ Pension Plan (OTPP) invested in BHC at the end of last year.

MBK sought to generate some liquidity in the position because it is the biggest value driver in the fund and a successor vehicle is currently in the market, according to a source close to the situation. The $850 million fund had generated a 2.2x multiple and a 53.5% IRR as of the end of 2020, and nearly two-thirds of its value was unrealized.

Partners Group came in at a similar valuation to OTPP – KRW1.8 trillion ($1.6 billion) – having recognized that BHC had transitioned from a special situations investment into more of a classic growth-oriented buyout. The continuation fund includes rollover equity, but more than three-quarters of LPs are said to have exited their positions. Partners Group declined to comment on financial details.

“The company is growing faster than the market; the fried chicken space has been growing faster than Korea’s QSR market as a whole; and the QSR market is seeing high single-digit growth,” Martin Liew, head of private equity integrated investments in Asia at Partners Group, told AVCJ.

“We saw many levers of further growth in the business in terms of profitability, as well as domestic and international expansion. We’ve also invested in a lot of F&B platforms across the globe, so we understand what works and what doesn’t work.”

Single-asset continuation funds are proliferating in the US and Europe as private equity firms explore ways to extend the holding periods for companies where they see significant future upside. Among GP-led secondary transactions globally, the multi-asset continuation vehicle share slipped below 50% last year, according to Greenhill. Single-asset continuation vehicles rose from 26% to 31%.

This is beginning to take hold in Asia, where historically it is estimated that fewer than 10 such transactions featuring secondary investors have closed. A fraction of those achieved meaningful size. A handful of deals of $500 million-plus were in the market as of June, and BHC is the first of these to close.

BHC first came under PE ownership in 2013 when Citi Venture Capital International (CVCI) paid around $100 million for a majority stake. Over the next five years, the business more than doubled in size by number of restaurants, while repositioning as a gastropub concept to draw in younger customers. Several bolt-on acquisitions of other brands took the restaurant count past 2,100.

CVCI’s private equity business was acquired by The Rohatyn Group (TRG) in 2013. In late 2018, Hyun Jong Park, CEO of BHC, bought back TRG’s position at a valuation of KRW600 billion, with NH Investment & Securities and MBK, respectively, providing senior and mezzanine debt financing. TRG’s Korea team, which was in the process of spinning out, provided some equity via a project fund.

OTPP’s arrival facilitated a full exit for the TRG Korea team, now known as Elevation Equity Partners, with a 2.6x return. OTPP committed KRW310 billion in equity, while Park sold KRW85 billion in shares and agreed to reinvest the proceeds in BHC. The deal was supported by KRW850 billion in debt.

The Partners Group continuation vehicle has a five-year life, with the option of two one-year extensions. BHC is expected to remain one of two market leaders in fried chicken QSR, trailing Kyochon, and enjoy robust growth. COVID-19 had a positive impact on business as delivery orders rose.

As to the broader market opportunity for single-asset continuation deals, Liew is optimistic – pointing to GP-led transactions as a good way to achieve portfolio differentiation – yet conservative. While secondary investors might be willing to write a sizeable check in the US, he believes this is unlikely in Asia at present, given concerns about single-asset exposure.

“We’ve been very cautious, especially in Asia, because you tend to get a big discrepancy in terms of manager quality,” he said. “It’s not only the quality of the asset, but also the quality and credibility of the manager that really drives the transaction. If we don’t have an existing relationship with the GP, we need to do a lot of work getting comfortable with the platform.”

PJT Partners acted as financial advisor to the BHC transaction.

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• Topics
• North Asia
• Secondaries
• Consumer
• South Korea
• MBK Partners
• Partners Group
• Secondaries