Illustration = JUNGDAWN
Illustration = JUNGDAWN

This article was published on April 9, 2025, at 1:27 p.m. on the ChosunBiz MoneyMove website.

The private equity fund (PEF) industry is struggling with restaurant franchise listings that are not selling.

The situation is likely to worsen. Both sellers and items are receiving negative attention. Concerns are arising that regulations on private equity funds and franchise businesses may worsen the situation further if there is a change in government.

According to investment banking (IB) industry sources on the 9th, the political sphere centered around the Democratic Party of Korea is pushing for regulatory legislation on private equity funds, including MBK Partners, which is under criticism due to the Homeplus incident. The People Power Party is also recognizing the need for regulations on certain behaviors of private equity funds, prompted by the Homeplus incident.

In particular, the Democratic Party plans to hold public hearings and gather opinions regarding the franchise industry, which has a large number of small businesses, before moving towards legislation.

They pointed out that since private equity funds aim to realize capital gains, they are often engaging in unfair practices against franchisees to achieve noticeable results. Kim Nam-geun, a member of the National Assembly's Political Affairs Committee from the Democratic Party, noted, "To generate short-term profits, private equity funds are making unreasonable store placements and imposing high-priced purchases on store owners, which creates many problems, necessitating regulation." The Financial Services Commission is also conducting research on the status, issues, and regulatory needs related to private equity funds.

In fact, franchises have been attracting attention from private equity funds due to their simple business structure, which makes corporate valuations easier and enhances profitability. With franchise expansion, sales growth can be expected relatively easily, and cash flow is predictable, making cost reduction feasible. Their cash generation ability is also excellent, leading to an influx of acquisitions by private equity funds around the time of the COVID-19 pandemic.

Major private equity funds mostly hold restaurant franchises. MBK owns Dining Brands Group, which operates BHC Chicken, Outback, Warehouse 43, and Geunmam Halmae Sundaeguk. Additionally, there are ▲ KL&Partners-Mam's Touch ▲ Carlyle Group-Two Some Place ▲ Affinity Equity Partners-Burger King ▲ Q Capital Partners and Costone Asia-Norang Tongdak.

However, there is a crisis recently. The frequency of changes in dining trends has increased, and the economy is also in recession. Amid this, many franchisees are small business owners, leading to progressively stricter regulations. As the appeal of franchises begins to diminish, private equity funds are hastily starting to exit (recover funds), but the outlook for the mergers and acquisitions (M&A) market is not very bright.

There are reportedly a considerable number of franchises that are publicly listed for sale recently. However, there hasn't been much progress on the matter. Recently, Baek Jong-won, the CEO of Theborn Korea, stated regarding the acquisition reports of the chicken franchise Norang Tongdak, "It is true that we considered it, but discussions have been halted," and Lichbeam, which operates 'Pizza Nation Chicken Princess,' had a deal with SG PE to acquire for 200 billion won last year, which fell through.

Orchestra Private Equity (PE) is currently in the process of selecting Samil Accounting Corporation as the advisor for the sale of 100% equity in KFC Korea, proceeding with the procedures.

An IB industry official noted, "Even PEFs that do not yet have concrete sale plans may be affected by future fund recovery strategies, so we are following up on related trends," and added, "If MBK ties the hands of domestic private equity funds, it raises concerns that overseas private equity funds may monopolize the domestic franchise market."