Private equity firms are increasingly acquiring South Korea's food and beverage companies, capitalizing on the sector’s growth despite inflation and economic slowdown.

LBM, operator of the popular bakery brand London Bagel Museum, is reportedly in the final stages of merger talks. The company has been exploring the sale of its controlling stake to several domestic and international private equity firms since last year, with a deal expected soon. Seoul-based PE firm JKL Partners emerged as a potential acquirer, although LBM has denied the report, stating that it is "focusing on securing new investments for overseas expansion," rather than pursuing a sale. LBM is preparing to enter Japan and Singapore, seeking a 300 billion won ($206.4 million) market valuation.

Since the second half of last year, private equity firms have emerged as key players in driving M&As within Korea’s food and beverage sector. In July 2024, Elevation Equity Partners Korea and Philippine food giant Jollibee jointly acquired Compose Coffee for 470 billion won. By investing in a joint venture between J&Partners and Quinvir Investment, Samhwa Foods took control of the viral yogurt brand Yoajung. Forest Partners is also in talks to acquire Myeong Ryun Jinsa Galbi for 160 billion won.

Private equity firms are returning to Korea's food and beverage M&A market after a lull starting in 2021, spurred by global inflation and the COVID-19 pandemic. The sector has recently regained its appeal through steady growth. While the broader dining industry faces challenges from a slowing economy, leading franchises continue to perform well. Valuations have been bolstered by shifts during the pandemic era, including the rise of delivery-driven businesses and the growth of social media marketing.

The growing global demand for Korean food, driven by the Korean cultural wave, has also fueled investor interest. Data shows that exports of Korean food reached $11.7 billion last year, up 6 percent on-year, with shipments to the US surging 20 percent.

"The Korean food and beverage sector was once dubbed 'the grave of PEs' due to its limitations — a small domestic market and limited success abroad — despite its traditional appeal," said an official in the local PE industry. "However, recent global successes of Korean companies like Samyang Foods, coupled with the growing popularity of Korean cuisine, have fueled optimism that Korean food and beverage brands can expand internationally."

More PE firms are specifically targeting international opportunities. Q Capital Partners and Koston Asia recently launched the sale process for the chicken franchise Norang Tongdak, while Compose Coffee's new owners plan to position the brand as an affordable coffee franchise spanning Southeast Asia.

While concerns persist over the common PE strategy of scaling a company’s value in the short term before reselling it for profit, many experts believe the advantages outweigh the drawbacks, especially as a PE acquisitions can inject vitality into the market.

"PE ownership typically allows efficient resource allocation to drive value improvements, leveraging global networks and expertise from previous investments to facilitate expansion to the next level," the industry official said.

Hwang Yong-sik, a business management professor at Sejong University, noted that PEs are also increasingly prioritizing operational improvements to drive corporate restructuring, rather than focusing solely on profit.

"In the past, PE-led M&As were often seen as hostile takeovers, driven primarily by financial outcomes. Now, many investors emphasize the process — enhancing service quality, ensuring compliance, and maintaining a balance with society. They have come to recognize that maximizing financial gains depends on sustainable growth," said Hwang.

A prime example is Hahn & Co.'s acquisition of Namyang Dairy Products. The company ended a six-year loss streak and returned to profitability in 2024, within a year of the PE firm's leadership. It also made significant strides in restoring brand value, which had been tarnished by ownership issues, including former chairman and founder Hong Won-sik’s abuse of power and embezzlement.

Since KL&Partners acquired Mom's Touch in 2019, the brand has grown significantly. After delisting in 2022, KL&Partners focused on strategic value-enhancing, increasing revenue by 26 percent and tripling operating profit in just four years. The company has also expanded aggressively, entering Thailand in 2022, Mongolia in 2023, and Laos and Japan in 2024, with plans for Kazakhstan and Indonesia this year.

Professor Hwang said local franchises should capitalize on the investment influx to strengthen their market position.

"No one can deny that a PE firm's ultimate goal is profit, and their investments are fundamentally finance-driven," Hwang said, cautioning against undue optimism. "However, that doesn’t mean companies should dismiss PE involvement. PEs invest in businesses with strong potential, and the biggest hurdle for companies looking to scale is securing substantial capital — something PEs can provide. Companies should take a strategic approach to these investors to create a win-win deal."

A more favorable environment for franchise M&As is expected to revitalize stalled sales for several brands, including Affinity Equity Partners-owned Burger King Korea, which has been seeking a deal for years. Mom's Touch, which failed to secure a 1 trillion won valuation in a 2022 sale attempt, has reportedly reentered the market.

By Choi Ji-won (jwc@heraldcorp.com)