Deal focus: Orchestra delivers pizza to Seoul

Orchestra Private Equity traveled all the way to Daegu, a city 237 kilometers southeast of Seoul and one-quarter the size, for its latest deal. The firm left with what it believes is a future market leader in Korea’s pizza delivery space – and a slightly different set of investors participating in the transaction.

Ever since switching from M&A advisor to investor in 2017, Orchestra has operated on a deal-by-deal basis, raising project funds to address buyout opportunities as and when they emerge. The $55 million project fund raised for the acquisition of Banolim Pizza is its fourth. LPs are typically financial institutions, and while they remain dominant, change is apparent at the margins.

“We did the fundraising in about six weeks, so it was a speedy process. We have the usual suspects – banks and others – and then we had two or three smaller family offices as well. This was new to us,” says Jay Kim, a partner at Orchestra. “There are more second or third-generation families starting investment programs and they are really interested in PE. I think that’s going to increase.”

While the fundraising process was swift, deal sourcing was drawn out over 18 months. It helped that Orchestra was the only group chasing the asset – in fact, Sungwon Yoon, the founder and CEO, hadn’t spoken to a financial sponsor before, despite Banolim establishing itself as Korea’s fourth-largest pizza delivery franchise in eight years. Kim puts it down to the relatively far-flung location.

“Most private equity firms don’t have a presence in Daegu,” he notes, adding that Orchestra – which has an office in Seoul – was introduced to the founder by a professional contact. “It’s unusual for a food and beverage franchise to start in another city and expand into Seoul.”

The likes of Domino’s, Pizza Hut, Mr. Pizza, and Pizza Alvolo are more Seoul-centric. For example, more than half of the 466 outlets market leader Domino’s had as of January were in the Seoul metropolitan area – it’s even higher for Pizza Hut – and over 100 were in the city itself. Of Banolim’s 300-plus stores, 40% are in the Seoul metropolitan area and fewer than 30 are in the city.

Orchestra has taken a majority stake in the business – the project fund owns 100% and Yoon has acquired a minority interest in that vehicle – with a view to supporting expansion. The goal is to surpass 500 outlets in the next 24 months and possibly push into Singapore or Hong Kong, but Seoul is the centerpiece. Orchestra hopes to grow the business 3-4x in the capital alone.

The company is already on the right track, with franchise system revenue expected to hit KRW120 billion this year, which Orchestra claims would move it up to third place nationally, after Domino’s and Pizza Hut. The private equity firm adds that Banolim compares favorably to its peers in terms of sales per square meter of store space, store failure rate, and franchisee payback period.

“We looked at 10-20 food and beverage deals, including barbeque restaurant chains and local liquor brands. We liked Banolim because of its profit margins and its growth potential,” Kim says. “Normally, no matter which QSR [quick service restaurant] segment, once a company reaches 400 franchisees there is limited potential for further growth. We still see a big opportunity for Banolim.”

The company has invested in cultivating a younger client base, modifying its menus, introducing a mobile app to take orders, and collaborating with social media platforms. But the most decisive steps arguably were taken years earlier when Yoon – who previously ran a motorcycle delivery business – propelled the brand into the public consciousness through savvy marketing.

He entered into product placement agreements with TV and online streaming shows, putting Banolim’s pizza into the mouths of celebrities, and then signed up celebrities as brand ambassadors. Notably, certain flavors of pizza are served in limited edition boxes bearing the face and signature of K-pop star IU, with the design resembling her latest album cover.

“Before they had any real exposure in Seoul, they gained nationwide recognition through the marketing campaigns,” says Kim. “The whole IU fanbase was asking for those pizzas.”

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• Topics
• North Asia
• Buyouts
• Consumer
• South Korea
• Orchestra Private Equity
• Food