In Sectors

Korea’s F&B industry performs a series of M&A


Korean confectionery titan Binggrae’s recent acquisition of Haitai Icecream could be a signal for a series of M&As across the food and beverage industry, as firms are making efforts to streamline their businesses to weather through the stagnant economy, industry officials said.

SEE ALSO : “Big three” retailers in Korea set plans on M&A

They said more deals will take place after the COVID-19 pandemic, as a growing number of firms are suffering “unprecedented” difficulties from dampened consumer sentiment due to the virus.

Binggrae announced that it signed a sales and purchase agreement on acquiring the whole stake of Haitai Icecream, a subsidiary of Haitai Confectionery & Food, at 140 billion won ($115 million).

Haitai Icecream, with a range of popular ice cream products such as Bravo Cone, Nougatbar and Babambar and Binggrae, said this will enrich its portfolio and create synergy with its own products.

When the deal closes, Binggrae’s domestic market share will reach 45 percent, overtaking the current top player Lotte Confectionery with 31 percent. Haitai Icecream was spun off from Haitai Confectionary & Food in January this year, as part of the latter’s restructuring plan.

Haitai plans to use the funds it secured from the deal for repaying its debts and for new snack production facilities.

As its ice cream department posted continued losses, Haitai Confectionary spun off the department and sought “financial investors” who will be focusing on capital gains rather than changing the corporate policy. As the effort to draw investment continues to fail, however, Haitai Confectionary decided to hand over the division to its rival.

Industry officials said the sales came along with the contraction of the domestic ice cream market.

According to Food Information Statistics System run by the Korea Agro-Fisheries & Food Trade Corp., the retail sales of ice cream stood at 2.02 trillion won in 2015, but quickly declined to 1.63 trillion won in 2018.

“Not only ice cream but the entire food and beverage industries are experiencing a downturn. This would not lead to sharp increase in the number of M&As for food and beverage companies right away, but the number of M&As will rise in a long-term perspective because more and more companies will undergo restructuring,” a private equity fund (PEF) official said.

One of the firms on the lips of market watchers is CJ Foodville. CJ Foodville CEO Jeong Seong-pil told its employees that the company will not make new investments for a while and unload some of its assets to secure liquidity to brace for the COVID-19 fallout.

This triggered anticipations that the CJ Group food unit will sell some of its dining businesses, such as steakhouse VIPS, buffet chain Season’s Table and bakery brand Tous les Jours, following its unloading of its coffee franchise, A Twosome Place, last year.

In April last year, CJ Foodville handed over a 45 percent stake in the coffee brand to Anchor Equity Partners at 202.5 billion won, in a bid to salvage itself from a deteriorating bottom line. Since 2015, the company has been logging operating losses every year, with that of 2018 standing at 43.4 billion won, up from 3.85 billion won a year earlier.

Along with a series of CJ Foodville brands, a number of food and beverage brands are currently mentioned as potential targets of M&A deals.

Market officials said Affinity Equity Partners is expected to seek an exit from BKR, which is running Burger King in Korea, in the near future, citing Burger King’s growth momentum after the PEF’s acquisition in 2016 will not be likely to continue due to weakened consumer sentiment and Korea’s rising minimum wage. BKR posted 18.14 billion won in operating profit last year, up from 9 billion won a year earlier.

Hollys F&B running Hollys Coffee is also an M&A target. Reportedly, its owner, IMM Private Equity, has recently selected Goldman Sachs as a lead manager for the sale of Hollys F&B, following its botched sales attempt in 2016. IMM acquired Hollys F&B in 2013 and has been running the brand for seven years, while other PEFs usually exit from their investment in four to five years.

Other franchises such as Outback Steakhouse, Mad for Garlic, Cafe Mamas, Nolbu NBG are also potential offerings as they had unsuccessful sales attempts.

Though the M&A market is expected to be rich with supplies, questions are remaining over demand, as investor sentiment also plunges amid the COVID-19 outbreak.

SEE ALSO : What makes Shake Shack and Blue Bottle popular in Korea?

“Along with the poor earnings of M&A targets, the financial market itself is strained amid the COVID-19 outbreak. Whether the targets will lead to actual deals depends on how the crisis unfolds,” the PEF official said.

(Source: Korea Times)

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