McDonald’s to buy Carlyle’s stake in its China business for $1.8bn

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US private equity investor Carlyle Group is set to earn a large windfall from its sale of a minority stake in the Chinese operations of McDonald’s, marking a rare dealmaking success in the region amid mounting geopolitical tensions.

The fast-food restaurant group said it would buy Carlyle’s 28 per cent stake in its Chinese operations, which also span Hong Kong and Macau, in order to rebuild exposure to what has become the restaurant group’s fastest-growing region.

Carlyle is selling its stake for an equity value of $1.8bn, valuing the overall operation at about $6.4bn, said two people with direct knowledge of the matter. Carlyle has calculated that the deal will make investors more than six times their money, before fees, one of the people said.

Carlyle and McDonald’s declined to comment on the valuation.

The deal will bring McDonald’s total stake to 48 per cent. It had kept 20 per cent after it sold stakes to Carlyle and Chinese group Citic Capital in 2017. A consortium led by Citic Capital will hold the remaining 52 per cent.

The deal comes as private equity firms step back from buyouts in China and raise less money for deals in the country, amid geopolitical tensions and a US ban on some investment in sensitive sectors in China.

Just 5.2 per cent of global buyouts in the first nine months of this year have targeted Chinese companies, down from 10.6 per cent in 2021 and 5.7 per cent last year, according to a report by the law firm Dechert.

McDonald’s had spun off its Chinese operations in 2017 by selling an 80 per cent stake for $2.08bn in cash to the private equity consortium. At the time, it was facing mounting pressure from activist investors, shedding stores and taking on debt to buy back its shares.

By carving out the Chinese operations, McDonald’s sought a way to quickly expand overall stores without burdening its balance sheet.

McDonald’s China more than doubled the number of restaurants to 5,500 during Carlyle’s investment and grew its delivery business. XD Yang, chair of Carlyle’s Asian operations, said in a press release the investor group also revolutionised the unit’s digital marketing efforts.

Citic Capital said in a statement it was “very pleased to see McDonald’s headquarters’ commitment to our business” and that it had “taken various measures to promote the localisation of McDonald’s China”.

Earlier this year, Carlyle began studying ways to sell its stake to large limited partners such as sovereign wealth funds, according to people familiar with the matter.

After the effort foundered, McDonald’s approached Carlyle with an offer to buy the private equity firm’s stake, said one of the people.

“We believe there is no better time to simplify our structure, given the tremendous opportunity to capture increased demand and further benefit from our fastest-growing market’s long-term potential,” McDonald’s chief executive Chris Kempczinski said in a statement on Monday.