What's going on?
According to reports late last week, private equity firms are considering a bid for Yum China – the US-listed owner of KFC and Pizza Hut restaurant brands in China (tweet this) that’s currently valued at $14 billion.
What does this mean?
Yum! Brands spun out its Chinese business into a standalone company in 2016. Since its emancipation, The Colonel’s finger-lickin’ good eats have been on the up but Pizza Hut’s not been quite as lucky.
The company may be of interest to investor, Hillhouse – it was an early backer of Tencent and JD.com, two of China’s tech and ecommerce success stories, respectively. As Chinese consumers do more online (including ordering food), Hillhouse’s expertise could help Yum get into more tums. Reports also suggest interest from KKR – last year, it raised $9 billion in order to make big investments in Asia, so it could potentially be a good suitor.
Why should I care?
For markets: Investors were hungry for Yum’s stock.
Yum’s stock rose as much as 16% on the news, but has since dropped a little – perhaps because discussions are reportedly at an early stage. Private equity firms like KKR typically take ownership of a company and load it with debt in order to fuel growth, while simultaneously cutting costs to boost returns. After some years, they often aim to sell the larger, improved company to investors for a higher price than they paid.
The bigger picture: On-demand food’s taking off in China.
Ele.me, the Alibaba-backed on-demand food delivery service valued at $10 billion (think: China’s answer to Seamless or Deliveroo) is driving change in China’s $42 billion online food delivery market, which might force companies to adjust to consumers’ new dinnertime routines. McDonald’s has invested a lot in upgrading its tech for instore and online ordering, while Panera Bread’s digital investments helped it hit $1 billion in online sales last year.