GA & Advent closer in on Burger King stake
General Atlantic and Advent International are at an advanced stage in their bid to acquire private equity firm Everstone Capital’s 40.9% stake in Restaurant Brands Asia (RBA), which operates fast-food chain Burger King in India, said executives aware of the matter.
“Everstone, which also operates Subway and Lavazza coffee in India, is looking to cash out from its stake in Burger King, and is now actively engaged in due diligence with private equity firms General Atlantic and Advent,” one of the executives said.
RBA reported a loss of ₹73.3 crore for the quarter ended March, widening from a loss of ₹67 crore in the year-ago period, impacted by food inflation and the opening of newer stores. Revenue from operations grew by over 28% year-on-year to ₹514 crore.
QSR Industry on a Capex Spree
Burger King and its coffee and beverage sub-brand BK Cafe together had a national store count of 391 restaurants as of March.
Everstone, RBA and General Atlantic didn’t respond to queries. Advent International declined to comment.
Both Advent International and General Atlantic are private equity firms focused on buyouts of companies in Asia, Europe and North America. Everstone Capital holds the stake in RBA through its investment vehicle QSR Asia Pte Ltd. The Singapore-based private equity group had brought Burger King to India in 2014.
The due diligence on the stake sale comes at a time when the growth of Western-style fast-food has slowed as consumers switch to lower-priced brands, and competition from smaller, regional brands has stepped up.
“Key risks to RBA are slower-than-expected improvement in customer footfalls, delays in store expansion plans, and increased competitive intensity in the north and east markets,” ICICI Securities wrote in a post-earnings note on May 18. Burger King has cut store expansion guidance by 4% to 450 stores for FY24 against 470 stores previously. Rival Devyani International, which operates KFC and Pizza Hut in India, reported a 21% decline in net profit in the quarter ended March, as inflation hurt margins, demand slowed and competition from smaller brands offering similar products at lower prices increased.
However, quick-service chains have said they will continue to escalate store expansion, led by opportunities in small towns, along highways and emerging channels such as convenience stores at petrol stations.
Credit rating agency ICRA said in a report last month that the top five in the domestic QSR industry could add close to 2,300 stores between FY23 and FY25 for an estimated capital expenditure of Rs 5,800 crore. The report cited Domino’s operator Jubilant FoodWorks, Devyani International and Sapphire Foods India, Restaurant Brands Asia and Westlife Foodworld, which operates McDonald’s in the west and south. Sapphire is a franchisee partner of KFC and Pizza Hut.
“The capex spree in the QSR industry is likely to be driven by favourable demographics, steady urbanisation, growing per-capita GDP and significant headroom available in terms of penetration, compared to a developed economy like the US,” Suprio Banerjee, vice president and sector head, corporate ratings, ICRA, wrote in the report. The report said most of the capex will be funded through internal accruals and cash on the books.
