LEE Thiam Wah, founder of 99 Speed Mart Sdn Bhd, has struck a deal to take over the Burger King fast-food chain in Malaysia and Singapore from Ekuiti Nasional Bhd (Ekuinas) for RM74.6 million.
Lee — who turned the grocery store he started 28 years ago into today’s mini mart chain — is partnering Datuk Chua Tia Guan through Newscape Capital Sdn Bhd to take over Rancak Selera Sdn Bhd, the company that owns Burger King in Malaysia and Singapore. Chua is executive director cum head of Great Vision Advisory Group, a tax and financial consulting firm.
“The deal was signed on Tuesday (Aug 18). It is not going to be under 99 Speed Mart. But Lee wants to integrate the Burger King business with his mini mart chains and allow his employees to move up to the quick-service restaurant [QSR] business,” says a source close to Lee.
Ekuinas CEO Datuk Abdul Rahman Ahmad, in a statement last Friday evening, said the deal puts the Burger King brand “under a long-term partner that possesses the financial strength and operational expertise”. It also completes Ekuinas’ exit from the QSR segment to focus on its casual dining and dessert franchise business under brands like Tony Roma’s, Manhattan Fish Markets, New York Steak Shack and San Francisco Coffee.
“These F&B brands under the Integrated Food Group (IFG) are growing well with combined revenue of RM338 million and Ebitda of RM36.5 million operating through more than 400 outlets across several regions,” Abdul Rahman added in the statement, which described Lee and Chua as people with “longstanding experience in managing and operating retail chain stores with an extensive outlet network across the country”.
Nonetheless, a price tag of RM74.6 million means Ekuinas is parting with its stake at only 45% of what the state-owned private equity fund spent to grow Rancak Selera.
Recall that Ekuinas paid RM68.2 million for 95% of Cosmo Restaurants Sdn Bhd, the franchise holder and operator of Burger King Malaysia, in 2011. In 2012, the fund acquired 100% of Burger King Singapore Pte Ltd (BK Singapore) through a follow-on investment worth RM78.2 million in the following year.
Both Cosmo Restaurants and BK Singapore are parked under Rancak Selera. At the point of the acquisitions, there were 32 Burger King outlets in Malaysia and 41 in Singapore. In contrast, there were an estimated 500 Kentucky Fried Chicken restaurants and 300 McDonald’s outlets in Malaysia.
The deal with Newscape comes six months after a previous agreement to sell Rancak Selera for RM95 million to a consortium consisting of Brahim’s Trading Sdn Bhd and Quantum Angel Sdn Bhd fell through. At the time, Brahim’s trading is a subsidiary of Brahim’s Holdings Bhd (fundamental: 0.35; valuation: 0.90) while Quantum Angel is a private investment vehicle owned by former managing director of QSR Brands Bhd Datuk Ahmad Zaki Zahid.
Brahim’s shareholders rejected the deal on Feb 25, 2015.
Had the divestment to Brahim’s Trading and Quantum Angel gone through, there would have been a loss across two of Ekuinas’ funds with a negative internal rate of return (IRR) of 21%, according to the private equity firm’s statement dated Nov 25, 2014. Ekuinas would have recovered only about 64% of the RM146.4 million capital invested.
For the current deal, Ekuinas said its RM74.6 million price tag translates into a negative IRR of 28.1% and an investment recovery of 0.45 times of capital invested.
That said, an exit means Ekuinas would no longer need to pump in money and effort to sustain and grow the business. Ekuinas had previously said the QSR business requires significant additional financial investment and operational capabilities in order to further expand the outlet network and achieve profitability.
In a previous interview with The Edge, Ekuinas’ Rahman said: “The business didn’t develop as fast as we liked ... We admit the operational capabilities probably need to be better. We are also affected by intense competition.”
The deal has been approved by BK Asiapac Pte Ltd, the master franchisor of Burger King in Asia-Pacific.
“We are excited about the opportunity ahead in both markets and look forward to working with Newscape to further expand and grow the Burger King brand in Singapore and Malaysia over the coming years,” BK Asiapac’s president David Shear says in the press release.
Ekuinas was set up by the government in 2009 to increase bumiputera equity participation via the creation of industry leading companies. The government provided Ekuinas with seed capital of RM5 billion, and allocated between RM500 million and RM650 million a year for the fund to grow.
It remains to be seen if the losses would significantly dent Ekuinas’ performance for 2015.
For 2014, Ekuinas’ Direct (Tranche I) Fund recorded a gross portfolio return of RM677.1 million, which translates into a gross annualised IRR of 19.6% and a net annualised IRR of 15.3%, exceeding its long-term minimum target return of 12%. Ekuinas Direct (Tranche II) Fund recorded a gross portfolio return of RM148.4 million, translating into a gross annualised IRR and an annualised net IRR of 31.9% and 19.3% respectively in FY2014.
The private equity firm undertook nine direct and outsourced investments with a total committed capital of RM605.8 million last year. That brought total cumulative committed investments undertaken by Ekuinas to 33 deals amounting to approximately RM2.4 billion.
Ekuinas’ total bumiputera equity value stood at RM4.2 billion in 2014, translating into 1.9 times capital invested, while shareholders’ value stood at RM5.5 billion or 2.4 times capital invested.
Known as Klang’s “King of Mini Marts”, Lee started dabbling in small-time retail business when he was 14 years old. In 1987, he opened his first retail store named Pasaraya Hiap Hoe in Tepi Sungai, Klang, with a capital of RM17,000. After five years, Lee — who lost the use of his legs to polio as a child — sold his supermarket for RM50,000 and with another RM30,000 loaned by his family members, started Pasar Mini 99 in Klang Utama. He opened seven more branches between 1992 and 1998, and renamed the retail chain 99 Speedmart in 2000.
Today, 99 Speedmart has about 600 branches in Malaysia, mainly in the Klang Valley. In an interview with The Edge in August last year, Lee said the mini market chain would record sales of more than RM2 billion for the year.
It will be interesting to watch how Lee will derive greater synergies for his mini mart chain with the addition of a quick-service restaurant.
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This article first appeared in digitaledge Weekly, on September 24 - 30, 2015.