This article was published on Feb. 16, 2025, at 5:37 p.m. on the ChosunBiz MoneyMove site.
Theborn Korea, which went public amid 'overvaluation controversy,' has plunged in stock price and is now officially embarking on mergers and acquisitions. The aim is to acquire food and beverage (F&B) companies that are financially viable to adjust its valuation ratio to a reasonable level.
Market observers see F&B companies that have been on sale since last year as potential acquisition candidates for Theborn Korea. In particular, there is a high likelihood that restaurant businesses such as chicken, which Theborn Korea does not currently operate, will be included in the acquisition candidates. Some analysts suggest that acquiring franchised restaurant businesses might provoke resistance from existing franchisees of Theborn Korea, making direct management-focused F&B companies more suitable for acquisition.
◇ Looking for a company that can be 'boosted' by Baek Jong-won's brand power
According to investment banking (IB) industry sources on the 16th, Theborn Korea is looking for F&B companies to acquire. It has been reported that they recently recruited personnel from a major accounting firm for their M&A team.
A senior official in the IB sector said, 'Theborn Korea is looking to acquire companies that can generate meaningful levels of earnings before interest, taxes, depreciation, and amortization (EBITDA) and is diligently receiving introductions to potential targets through various managing agents.'
He added that 'Theborn Korea's greatest strength is the brand power of CEO Baek Jong-won' and that they likely want to acquire companies that could take off with a little marketing by combining Baek's brand power with their existing franchise network.
As of the end of the first half of last year, Theborn Korea had consolidated current assets (assets that can be liquidated within one year) of 139.5 billion won. The company saw an additional inflow of 102 billion won after going public in the securities market last year. During the IPO process, Theborn Korea stated that 'part of the public offering funds would be used for M&A and equity investments in the F&B sector,' allocating a total of 93.5 billion won for M&A.
Considering this, it seems unreasonable for Theborn Korea to acquire F&B companies with valuations in the hundreds of billions won. Industry insiders analyze that targets would be suitable in the range of several hundred billion won to 100 billion to 200 billion won.
Industry sources suggest that Theborn Korea has not predetermined what type of company it will acquire within the F&B sector, stressing that the ability to generate profits is more important.
A representative of a private equity firm noted, 'It seems likely that F&B types that Theborn Korea currently does not operate, such as chicken, will be included in the acquisition candidates,' adding, 'Dessert options are currently losing popularity.'
Currently, there are several F&B properties in the market looking for new owners. For instance, Rich Beam, which operates 'Pizza Palace Chicken,' attempted to acquire last year for 200 billion won but the deal fell through. Q Capital Partners and Costone Asia are pushing to sell Yellow Chicken, with the estimated selling price being around 200 billion won.
KFC Korea, owned by Orchestra Private Equity, and Ball Rolling Pizza are also mentioned as potential F&B companies for acquisition by Theborn Korea. KFC Korea was sold to Orchestra Private Equity by KG Group for 55 billion won in 2023, and Ball Rolling Pizza came under Orchestra Private Equity in 2021 for 55 billion won. Ball Rolling Pizza particularly expanded its footprint by acquiring Ogu Rice Pizza for 10 billion won at the end of last year.
◇ Stock price plummets to the 30,000 won range… 'We need to acquire profit-making companies to lower EV/EBITDA'
Theborn Korea's intention to acquire profit-making F&B companies stems from the overvaluation controversy that had been raised even before the company went public. After listing on the securities market in November of last year, Theborn Korea set its IPO price at 34,000 won, estimating its corporate value at 490 billion won. Its price-to-earnings ratio (PER) reached 17.6 times.
At that time, Theborn Korea selected CJ Seafood, Daesang, Pulmuone, and Shinsegae Food as comparable companies, but it faced criticism for comparing a franchisor with companies that are comprehensive food businesses. In particular, Pulmuone's PER approached 23.79 times, raising questions about Theborn Korea's justification for its high valuation by intentionally including companies with lower relevance as peers.
Subsequently, Theborn Korea's stock price has plummeted to around 30,000 won. On the 14th, the closing price was 30,300 won, falling short of the IPO price of 34,000 won. According to NH Investment & Securities, the leading underwriter in Theborn Korea's listing, 98.84% of 17,892 investors holding Theborn Korea shares as of the 13th are now at a loss, with their average purchase price being 38,017 won, resulting in an average loss of 25.73%.
An industry official stated, 'There were a lot of arguments from the beginning that Theborn Korea's valuation was too high compared to the money this company makes,' adding that if they acquire an F&B company generating significant EBITDA and reflect that in the consolidated results, it could lower their EV/EBITDA and enhance investment attractiveness. Theborn Korea's EV/EBITDA was approximately 17 times based on the public offering price. The common valuation ratio for F&B companies is around 10 times.
However, some within the industry point out that expanding Theborn Korea's franchise business may provoke backlash from existing franchisees. A private equity source remarked, 'Franchise headquarters need to pay attention to market conditions and marketing, but if they acquire new franchises, there may be concerns that 'now we won't be cared for anymore,'' suggesting that an F&B company that only operates directly managed stores would be ideal from Theborn Korea's perspective.
There are also analyses suggesting that acquiring sauce or ingredient companies capable of vertical integration would be suitable instead of expanding the franchise business. Among potential candidates, MG Food Solutions, which is planning a sale by Daol Private Equity, is valued between 70 billion and 80 billion won.