McDonald's Expands Investment in China, Seizing Tremendous Opportunities

McDonald's has reached an agreement to increase its ownership stake in its China business to nearly 50%, demonstrating its optimistic outlook on growth opportunities in the world's second-largest economy. This decision stands in stark contrast to the current trend of multinational companies reducing investments or completely withdrawing from the Chinese market due to geopolitical and economic difficulties.

McDonald's plans to increase its stake in the burger chains China business by acquiring investment firm Carlyle's 28% holding, which includes stores in Hong Kong and Macau. This deal will result in McDonald's stake rising to 48%. The majority ownership, with a 52% stake, will be held by a consortium led by CITIC, a state-backed conglomerate in China. According to McDonald's CEO Chris Kempczinski, this move is aimed at simplifying the company's structure and taking advantage of the growing demand and long-term potential in their fastest-growing markets.

The financial terms of the transaction were not disclosed, but according to two sources familiar with the deal, the valuation of the China unit is estimated to be approximately $6 billion. This represents a substantial increase from its valuation in 2017, when McDonald's sold 80% of the business to CITIC, its investment arm CITIC Capital (now known as Trustar Capital), and Carlyle for a maximum of $2.1 billion. During that period, the US company aimed to achieve rapid expansion without significant capital expenditure.

Carlyle and Trustar had previously sought a valuation of up to $10 billion, according to unnamed sources. However, the valuation falls short of this figure. Both Carlyle and McDonald's declined to comment on the matter.

The number of McDonald's stores in China has doubled to 5,500 since 2017, making it the company's second-largest market. With ambitions to expand further, McDonald's aims to surpass 10,000 stores in China by 2028. Additionally, the Chinese business has experienced impressive sales growth of over 30% since September 2019, according to the company's official statement.

Jim Sanderson, an analyst at Northcoast Research, stated that a stronger investment position would grant McDonald's a greater influence in ensuring the realization of their anticipated growth in the market. In contrast, sources have revealed that Tyson Foods, a US meat and processed food manufacturer, intends to divest its poultry business in China.

British consumer goods maker Reckitt Benckiser in 2021 sold its China infant formula and child nutrition business to investment firm Primavera Capital.