Affinity Equity Partners, a Hong Kong-based buyout firm, is testing the market for a potential revived sale of BKR, the Burger King franchise business in South Korea, three sources familiar with the situation said.

The sell-side has sounded out potential suitors, including strategics and private equity firms, to gauge the interest of the asset, the first two sources said.

Goldman Sachs, previously engaged as the financial advisor overseeing the sale process in 2022, has been re-engaged to assist with a potential sale planned for next year, according to the second and third sources.

Discussions are still in the early stages, with the timeline, structure, and method for the sale, including considerations around the Japan business, yet to be determined, the first and second sources said.

Affinity hired Goldman Sachs to manage the sale of its Burger King operations in Korea and Japan, but dropped the plan later in 2022, according to Mergermarket reports. The sponsor subsequently explored an option of a continuation fund involving the Burger King business portfolio, as reported by this news service in June 2023.

However, the firm decided not to pursue the route, a fourth source familiar with the situation said.

The private equity owner was flexible on deal structure in its previous sale attempt in 2022, offering the option of either a combined or separate sale of the two regional businesses, as reported by this news service. Korea constituted most of Affinity’s Burger King portfolio, whereas its Japan business, though attractive and growing, is small. The expected sale price was about KRW 800bn (USD 580m), with South Korea’s EBITDA at KRW 60bn-70bn (USD 43m-50m).

With the investment holding period now exceeding eight years, an accelerated exit effort is anticipated, a sector advisor said. While the subdued Korean franchise market remains challenging, BKR has restored its profitability since last year and is fueling growth through several strategic initiatives, including the recent launch of the Tim Hortons coffee brand. Additionally, the company refinanced its acquisition loan this year at an interest rate in the mid-to-high 7% range, due in 2027, and managed to include a dividend recapitalization as part of the refinancing, the advisor said.

Affinity Equity Partners and Goldman Sachs did not respond to requests for comment.

Affinity replaced its existing acquisition financing with a lower cost package early this year, securing KRW 185bn in acquisition loans and an additional KRW 20bn recapitalization from domestic lenders including KB Kookmin Bank and Korea Investment & Securities, according to a local report in April.

Affinity acquired 100% of BKR in 2016 from VIG Partners for approximately KRW 210bn. BKR operates 490 stores in Korea as of March 2024, as per its website. It is the third-largest player by store count following Mom’s Touch and Lotteria. 

The company reported its record high operating profits of KRW 23.9bn on a turnover of KRW 745.3bn in 2023, with net profits rising to KRW 6.5bn from a KRW 2.3bn loss in 2022, according to its annual report.

Growth in Japan 

BK Japan currently operates 237 Burger King stores in Japan and aims to increase it to 600 by the end of 2028, according to the company’s press release this month. It has steadily expanded operations, growing from 177 stores in 2022.

Affinity owns 100% of BK Japan Holdings, which fully owns BK Japan. BK Japan generated revenue of JPY 20bn (USD 130m) for the year ended December 2023, up from JPY 18.1bn for the previous year, as reported by Tokyo Shoko Research.