In November 2018, VTB bank and a group of investors, including the Arab Fund Al Nahdha Investment and the Marathon Group, became owners of 100% of International Restaurant Brands, LLC.
This LLC — is “the largest partner of the company Yum! Brands Russia & CIS, responsible for the growth and development of the KFC brand in Russia”.
VTB Capital — an investment division of VTB, as part of a consortium of Russian and international financial investors, became the owner of 100% of international Restaurant brands. The representative of Marathon Group also confirmed that the investment group is a co-owner of the company — the largest Russian franchisee KFC.
The sale of “International Restaurant Brands” was closed on October 31, 2018. The deal included 180 Russian KFC restaurants, which were previously directly owned by Yum! Brands and were allocated to a separate company. The sale is part of the global strategy of the parent company Yum! Brands to increase the share of franchised restaurants to 98% by the end of the 2018 fiscal year.
How the deal works and why it is the Russian Bank, which is already a co-owner of a direct competitor KFC — network Burger King.
100% shares of OOO “International Restaurant Brands” owned by LLC “Quasar Investments” in which the ownership structure looks as follows: VTB Bank is the beneficiary of 14.75% (issued through three companies in which the Bank is the owner); Marathon Group — the share of indirect ownership through Cyprus offshore company in LLC — 23.53%. Among the main assets holders of the investment group — chain od supermarkets “Magnit”, pharmaceutical enterpris “Synthesis”, “Biocom”, “Fort”, “Bentus Laboratory”, pharmacy operator “Mega Pharm»;
Arab Al Nahdha Investment — share of indirect ownership is 14.75%. The group invests in a variety of asset classes — from stocks and bonds to private equity and hedge funds, and is one of the largest real estate developers in Abu Dhabi.
In an interview with “The business year”, the head of Al Nahdha Investment group Galal Kulaib mentioned that the Fund has recently started to buy shares in international companies directly or by investing together with partners. In an effort to diversify risks in financial services and real estate, the Fund is looking closely at areas such as retail, food and beverages, he added;
Lavenior Investments Limited — share of indirect ownership — 46.97%. Its owner through the chain of companies is an offshore company from the British virgin Islands Cosimo Holdings Limited. The beneficiary of this company is unknown, other participants of the transaction do not disclose it.
The commercial terms of the transaction were not disclosed by the parties. 180 restaurants could be estimated at 6 EBITDA. According to other sources (comparative EBITDA points sold last year) – the asset could cost €126-156 million.
How KFC works in Russia.
The American fast food chain KFC (Kentucky Fried Chicken) has been operating in Russia since 1993. The brand entered the market through a partner — “Rostik Group” Rostislav Ordovsky-Tanaevsky Blanco, who opened restaurants under the brand “Rostik’s”.
In 2005, the American Yum! Brands, which also owns the Pizza Hut brand, has agreed with Rostik group on the joint development of the Rostik’s — KFC brand. In 2010, Yum! Brands bought the rights to Russian restaurants, retaining the name of KFC.
Now in Russia there are more than 750 KFC restaurants, of which own restaurants (which belong to the Russian Yum! Brands through LLC “Yam Restaurants Russia”) — are about 50. For comparison, another popular fast food chain — McDonald’s — now has 680 restaurants in Russia.
Most KFC restaurants in Russia are opened by franchise partners. Prior to the transaction with a consortium the largest of these was the Polish Amrest holding, who at the end of 2018 operated 178 of the
KFC restaurants in Russia. Another 30 restaurants are operated by “Aey Kay Restaurants Russia LLC” who owned “Chocoladnitsa” and as of February 2019, by structures of Sberbank.
Why the consortium invested in KFC.
VTB explained its interest in KFC by the fact that they see “great potential in the further development of the catering market in Russia”. The most attractive segment of this market, from the investor’s point of view, is restaurants that specialize in hamburgers and chicken dishes, and KFC, in turn, is a “leader in its sector, the volume of which is growing at a double-digit rate.” The Marathon Group added that they expect a significant growth of the network in the coming years.
The deal with KFC is absolutely of investment nature, since the company’s performance is more than impressive. According to Yum! Brands, the Russian market for it is really one of the fastest growing.
The most rapid growth occurred in 2012-2015, when sales of Russian KFC restaurants grew by more than 40% per year. By 2017, Russia’s share in global KFC sales increased to 4%.
In the same year, a deal was made between Polish Amrest and one of the Russian franchisees: then the restaurant syndicate bought 21 KFC restaurants. The amount of the transaction amounted to more than 1.65 billion rubles. — based on this, for one restaurant Amrest paid 78.8 million rubles.
For 2018 Yum! Brands has not disclosed indicators on the Russian market. But the report for the fourth quarter mentions that Russia and Eastern Europe already account for up to 8% of all KFC sales, and sales growth in the region was 20%, ahead of all other markets except India.
KFC plans to grow due to the franchise business model and over the next few years intends to expand the network of restaurants in Russia. Earlier it was reported that the plans of Yum! Brand are to increase the number of KFC restaurants in Russia and CIS from the current 758 to 1000 by 2020.
VTB has already “earned” on fast food, namely on transactions with a competitor KFC. In 2012, the Bank invested in the Burger King. Then VTB bought 48.8% in a joint venture network Burger King Corp. and its franchisee “Burger Rus” (belongs to the main owner of “Chocoladnitsa” Alexander Kolobov) for $50 million .
VTB sold part of this package (12.2%) in 2014. In 2018, the Bank sold another part of its stake in the Russian Burger King (16.62%) to a company associated with the Ukrainian ICU group. The amount of the last transaction amounted to 4.6 billion rubles, or about $80.9 million. Now VTB owns 19.98% of the Russian business of Burger King.