Carlyle, Trustar pursue partial exit, rollover of McDonald's China
The Carlyle Group and Trustar Capital, private equity owners of McDonald’s China, are poised to abandon plans for a single asset continuation fund in favour of exiting part of their holdings and rolling over the rest into other funds.
The continuation fund option underwent soft marketing but met with limited investor appetite amid uncertain market conditions, according to six sources familiar with the situation.
The proposal valued the buyout firms' combined 80% stake in McDonald’s China at USD 4bn, according to Mergermarket, AVCJ's sister publication. Singapore’s GIC and Middle East-based Abu Dhabi Investment Authority (ADIA) and Mubadala Investment were reportedly approached as potential anchor investors.
The private equity firms are now working with advisors to identify investors interested in taking direct equity stakes in McDonald’s China, the sources added. These may be existing LPs in funds with exposure to the asset or new investors.
Carlyle and Trustar declined to comment. McDonald’s China did not respond to requests for comment.
The transaction structure offers some of the advantages of a continuation fund – prolonging ownership of a prized asset and generating liquidity for existing funds – while potentially stimulating new fundraising activity. Trustar is currently seeking USD 3.5bn for its fifth China buyout fund, while Carlyle is targeting USD 8bn for its sixth pan-Asian vehicle.
Fundraising for private equity globally has slowed significantly. Asia has been hit especially hard as limited partners concentrate their budgets on markets perceived as less risky and, in many cases, avoid China completely. By using McDonald’s China as a seed asset in their funds, Carlyle and Trustar may attract more investors, the sources explained.
Trustar has yet to announce a first close on Fund V. Commitments currently stand at approximately USD 900m, two sources said.
The private equity firm, which owns 52% of McDonald’s China, wants to offload USD 600m-USD 800m worth of shares through the partial exit, according to one of the sources. Incoming investors would be asked to make individual commitments of at least USD 100m.
The asset is held in Trustar’s third fund. A partial exit and rollover at the valuation being discussed would put the manager on course for a 6x return, the second source said.
Carlyle, Trustar, and the Hong Kong-listed arm of Chinese conglomerate CITIC Group acquired a majority stake in McDonald’s China – the master franchise for the fast food chain in mainland China and Hong Kong – in 2017 for USD 2.1bn. CITIC took a 32% interest, with Trustar and Carlyle getting 20% and 28%. McDonald’s retained 20% and also receives royalty payments from the business.
Three years later, CITIC sold its stake to Trustar for USD 533m.
McDonald’s China generated USD 1.3bn in revenue and around USD 180m in EBITDA in the first quarter of 2023, Mergermarket reported. Revenue and EBITDA for the 2022 financial year were USD 4.5bn and USD 410m. It operates more than 4,500 stores.
The partial sale-plus-rollover structure is not unprecedented in Asia. Earlier this year, BPEA EQT completed the USD 6bn merger of corporate service providers Vistra Group and Tricor Group. This involved Tricor, a Fund VIII portfolio company, acquiring Vistra, which was held across Funds V and VI. Several investors took direct equity stakes in the combined entity as part of the deal.
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