This article was published on April 27, 2025, at 11:15 a.m. on the ChosunBiz MoneyMove site.
The food and beverage (F&B) franchise merger and acquisition (M&A) market has completely changed into a buyer's market. There are plenty of places wanting to sell, but due to the economic downturn and the recession in the restaurant industry, there are none looking to buy. Amid the negative public perception of the franchise industry, political risks are also rising. Transactions between private equity fund (PEF) operators have disappeared due to concerns over exit investment.
The formation of a consortium between strategic investors (SI) and financial investors (FI) drew some attention, but that too has come to a halt. There are evaluations that even exits after listing have stopped with the case of Theborn Korea. There is even an 'irony' unfolding where Theborn Korea, which needs to boost its stock price, is being highlighted as a potential buyer.
According to the Franchise M&A Exchange and the investment bank (IB) industry on the 27th, it is understood that the F&B franchise brands currently on the market domestically include more than ten locations such as 'Pizza Nara Chicken Gongju', 'Dessert 39', 'Norang Tongdak', 'KFC', 'Pizza Hut', and 'Myeongryun Jinsa Galbi'.
Without any transactions being finalized, properties are just piling up. The pizza and chicken franchise Pizza Nara Chicken Gongju was put on the market in 2022. It has been searching for a buyer for three years. Dessert 39, well-known as a dessert cafe, entered the market in the first half of last year but failed to find a buyer and has been treated as a potential sale.
There are analyses that this is because franchise brands have become areas that PEF operators are reluctant to invest in. This contrasts sharply with the past when PEF operators repeatedly acquired franchise brands, and many secondary deals occurred where one PEF operator bought out another's properties.
For instance, Hong Kong-based PEF operator Anchor Equity Partners acquired the coffee franchise Two Some Place and sold it to the global PEF Carlyle. It garnered attention for recouping double the invested capital. Domestic PEF operator UCK also achieved over five times the revenue compared to the investment in the milk tea brand Gong Cha.
PEF operators believe that it is not easy to achieve returns like Two Some Place or Gong Cha due to the economic downturn and the recession in the restaurant industry. The multiple used to estimate franchise brand valuations, known as earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple, has also decreased from ten times in early 2020 to below five times recently.
A contact in the IB industry noted, 'With the slow growth in the F&B market, it has become uncertain whether high transaction multiples will be recognized in the future,' adding, 'Above all, when trying to invest in franchise brands, it is impossible to secure funding from institutional investors (LPs) such as financial companies or mutual aid associations.'
It has become increasingly clear that financial institutions and mutual aid associations, which are the main funding sources for PEF operators, are reluctant to invest in franchise brands. This is because they are sensitive to trends and can suffer brand image damage over even small issues, making downside risks frequently uncertain. Conflicts with franchise owners are also problematic.
Given this situation, recent franchise M&A has become centered on the participation of SIs. PEF operators are looking for brands with potential for overseas expansion and engaging SIs seeking business diversification as investors. Recouping investments is structured through methods like listings or put options.
However, the market evaluations indicate that even this has recently come to a halt. The negative perspective of the Korea Exchange towards franchise listings has worsened due to Theborn Korea. Following its listing, Theborn Korea suffered a sharp decline in stock price due to hygiene controversies and legal violations related to farmland law.
Forest Partners, which is currently pursuing the acquisition of the marinated short rib franchise Myeongryun Jinsa Galbi, is reported to have been hit hard by the situation involving Theborn Korea. The project fund for acquiring Myeongryun Jinsa Galbi has faced difficulties due to uncertainty regarding listing.
An investment officer at a financial firm stated, 'Initially, Forest Partners aimed to improve performance by promoting Myeongryun Jinsa Galbi's overseas expansion and was presenting post-listing capital recovery plans to LPs.' He continued, 'LPs believe that there will be no further franchise listings due to the Theborn Korea incident.'
Amid this, Theborn Korea is gaining attention as a key entity for franchise acquisitions. Baek Jong-won, the CEO of Theborn Korea, has announced that by the end of 2023, the firm plans to use a portion of the funds from its public offering for M&A. Theborn Korea has also been mentioned as a potential buyer of Norang Tongdak.
Industry analysis suggests that the number of franchises closing doors in the long term is likely to increase. Without M&A success, business restructuring may inevitably intensify. Corporations aiming for business diversification are more likely to invest in growth industries rather than spend funds securing franchise brands.
Franchise brands have already entered a declining phase. According to the Fair Trade Commission's '2024 Franchise Business Analysis Status,' the number of domestic franchise brands was 12,377 as of the end of last year, a decrease of 0.4% compared to the previous year. This marks the first decline since the statistics gathering began in 2013.