* China company owners exiting through M&A deals
* CVC in talks to buy majority stake in South Beauty-sources
* CVC would pay around $300 mln -sources
By Stephen Aldred and Prakash Chakravarti
HONG KONG, Oct 30 A potential deal for CVC
Capital Partners to buy a majority stake in a Chinese
restaurant chain highlights a growing willingness by smaller
China firms to cede control to foreign private equity amid
unfavourable IPO prospects.
London-based CVC is in advanced talks to buy a majority
holding in South Beauty Investment Co Ltd for $300 million,
sources with knowledge of the matter told Reuters.
South Beauty, which operates high-end restaurants that cater
to China's business and political elite, had previously hired
banks for a Hong Kong IPO worth as much as $200 million that had
been planned for this year.
A successful deal would also be the latest in a string of
stake acquisitions in Chinese restaurant chains by foreign
Owners of China's small and medium sized companies prefer to
exit their investments through IPOs, which tend to generate
But stricter regulations for offerings in China, a choppy
public market in Hong Kong and tighter credit conditions are
helping private equity firms, which are unable to exit minority
stakes through public listings, convince owners to give up
control, sources have said.
Under the deal being discussed, CVC is buying 69 percent of
South Beauty while the restaurant chain's founder Zhang Lan will
own a 31 percent stake, Basis Point, a Thomson Reuters
publication, reported on Tuesday.
The deal would follow one this year by Swedish firm EQT
Partners to take majority control of RCS Group Co for around
$170 million. EQT bought stakes from both the Chinese owner and
private equity backer Warburg Pincus, sources told
RCS has franchise rights for ice-cream vendor Dairy Queen
and one of China's biggest pizza chains, Papa John's.
Deals done last year include Unitas Capital paying $40
million to buy majority control of Babela's Group, which runs
Italian, Cantonese and Taiwanese restaurants, from investors
including Carlyle Group. General Atlantic acquired a
stake in hot pot chain Xiabu Xiabu from private equity firm
A successful deal would give Chinese private equity firm CDH
Investments an opportunity to exit from its investment, the
sources added. CDH bought an unspecified stake in South Beauty
in 2008 for $29.3 million, according to Thomson Reuters data.
South Beauty was founded in 2000 and has restaurants
nationwide including in Beijing, Shanghai, Shenzhen and
The restaurant chain had earnings before interest, tax,
depreciation and amortization (EBITDA) of 308.5 million yuan
($50.7 million) for the 12 months ended July 2013, Basis Point
A deal for 69 percent of South Beauty at $300 million would
represent an EV/EBITDA ratio of around 8.5. Listed comparables
trade at 7.76, according to Thomson Reuters data.
CVC has hired Bank of America Corp as an advisor,
and the bank is arranging loan financing of $140 million to back
the acquisition, Basis Point said.
Bank of America and CVC declined to comment. South Beauty
did not reply to an email requesting comment. Sources declined
to be identified as the discussions were confidential.