McDonald's reaches $2.1 billion China franchise deal

by Eric Schroeder
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McDonald's China
The transaction will make the companies the largest McDonald's franchisee outside of the United States.

HONG KONG — CITIC Ltd., CITIC Capital Holdings and The Carlyle Group have agreed to acquire McDonald’s mainland China and Hong Kong business for approximately $2.08 billion. The transaction will make the groups the largest McDonald’s franchisee outside of the United States, with plans to add more than 1,500 restaurants in Hong Kong and China over the next five years.

Once the transaction is finalized, CITIC and CITIC Capital will have a controlling stake of 52%, while Carlyle and McDonald’s will control 28% and 20%, respectively.

The partnership is part of McDonald’s turnaround plan that was put in place in May 2015 in which the company committed to refranchising 4,000 restaurants by the end of 2018. The Oak Brook, Ill.-based company has set a long-term goal of becoming 95% franchised.

The companies said they expect to use their combined expertise and resources to accelerate growth in McDonald’s business through new restaurant openings, particularly in tier 3 and 4 cities, as well as to improve sales performance in existing restaurants. Additionally, focus will be centered on menu innovation, enhanced restaurant convenience, retail digital leadership and delivery.

Steve Easterbrook, McDonald's
Steve Easterbrook, c.e.o. of McDonald’s

“China and Hong Kong represent an enormous growth opportunity for McDonald’s,” said Steve Easterbrook, chief executive officer of McDonald’s. “This new partnership will combine one of the world’s most powerful brands and our unparalleled quality standards with partners who have an unmatched understanding of the local markets and bring enhanced capabilities and new partnerships, all with a proven record of success. By working together, we will unlock even faster growth and be closer to the customers and communities we serve as McDonald’s works to be the leading quick-service restaurant across the Chinese mainland and Hong Kong.”

CITIC said the investment offers the company a chance to deepen its exposure to the consumer sector in China, and is another step in the company’s efforts to better balance its financial and non-financial businesses.

Chang Zhenming, CITIC
Chang Zhenming, chairman of CITIC Ltd.

“We believe CITIC’s unique platform and its extensive resources will enable us to help realize McDonald’s full potential in China,” said Chang Zhenming, chairman of CITIC Ltd. “Together with our partners, we will devote ourselves to continue upholding McDonald’s extremely high standards of food quality and service. Importantly, this is also a strategic opportunity for CITIC to invest in the expanding Chinese consumer sector. McDonald’s extensive network and consumer base will provide us with invaluable insights, which we will leverage to the benefit of our existing businesses.”

Carlyle has invested more than $7 billion of equity in approximately 90 transactions in China. The latest investment offers it a chance to partner with an iconic brand with sizeable market share and growth potential in China.

Yichen Zhang, chairman and c.e.o. of CITIC Capital, will serve as chairman of the new company. Representatives from CITIC, CITIC Capital, Carlyle and McDonald’s will make up the rest of the board, while McDonald’s existing management will continue to lead the business.

Zhang Yichen, CITIC
Yichen Zhang, chairman and c.e.o. of CITIC Capital
“McDonald’s core business proposition and potential in China is clear,” Mr. Zhang said. “We will work closely with the existing management team and partners, including Beijing Capital Agribusiness Group, to respond to local market expectations and continue to expand and improve the business to meet the needs of the Chinese consumer.”
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