VIG nets 2.5x in Burger King sale to Affinity

The Seoul-based firm has sold Burger King’s South Korea franchise in a deal worth $170 million as its seeks to raise its third vehicle.

Korean mid-market firm VIG Partners (formerly known as Vogo Investment Group) has sold its entire 100 percent stake in Burger King South Korea to Affinity Equity Partners for $170 million. The sale generated a 2.5x return on its original investment.

The exit was announced as VIG is understood to be in the process of raising its third fund with a target of $500-600 million.

Burger King was the first investment VIG undertook through its Vogo Fund II, a 2012-vintage vehicle that raised $350 million. The firm bought full control of the local chain of Burger King from Doosan Group’s restaurant franchise operator SRS Korea for about KRW 100 billion ($88.7 million; €79.7 million ) in September 2012.

The fund’s other portfolio companies are online price comparison service provider Enuri, massage chair company Bodyfriend and lens company Samyang Optics. Korea’s National Pension Service is an investor in the fund.

According to VIG managing partner Jason Shin, VIG was given the exclusive opportunity by Doosan Group to acquire both Burger King and KFC in 2012. The firm, however ruled out buying KFC upon due diligence, realising that it would be too challenging in Korea where the market is highly saturated and competitive. Two years later, KFC was bought by CVC Capital Partners for $98 million.

“During VIG’s period of ownership the firm replaced the company’s entire top management (as the previous management were not from the restaurant management industry), grew the number of restaurants from 130 to 240 outlets, focused on opening new restaurants in optimal locations, and put into place 24-hour outlets, drive-thru and delivery,” managing partner Chulmin Lee told Private Equity International. “All that resulted in a 30 percent increase in daily average sale per outlet since we took over.”

Hong Kong-based private equity firm Affinity Equity Partners structured the Burger King deal through its Affinity Asia Pacific Fund IV, a buyout vehicle which closed on $3.8 billion in 2014 after one year in market. Known investors in the fund include the New York State Common Retirement Fund, Michigan Department of Treasury, Washington State Investment Board, Partners Group and AlpInvest Partners, according to PEI’s Research & Analytics division.

Affinity has been an active investor in Asia. In 2014 the GP with co-investor KKR sold Oriental Brewery back to its previous owner Anheuser-Busch InBev NV in 2014 for $5.8 billion, generating three times the original investment. Last year, Affinity expressed an interest to buy a majority stake in water purifier company Coway from MBK Partners.

Affinity Equity could not be reached for comment.

M&A activity in South Korea has increased over the years due to a restructuring trend in major conglomerates such as Samsung Group and LG Group. Family-run chaebol businesses are also divesting their non-core assets as part of a generational shift in management.

According to data from Dealogic, M&A activity in South Korea hit a record 885 deals with a total value of $84.3 billion in 2015, with MBK Partners’ acquisition of Tesco’s local unit Homeplus for $6.1 billion being the largest deal of the year.

South Korea’s finance ministry has announced several rule changes in the past years to encourage corporate takeovers and private equity fund activities.

It amended its Financial Investment Services and Capital Markets Act (FSCMA) last year to make it easier for managers to raise funds in the region. The reform introduced the “private collective investment vehicles for professional investment”, which would allow companies to invest in funds comprising any type of asset, as previously reported by PEI.

Last year, the government also eased rules related to private equity backed companies that list on the South Korean stock exchange. Under the new rules, companies can list secondary shares unlike previously when only primary shares were allowed.