Restaurant Brands International Announces Investments to Drive Growth in China

Rhea-AI Summary

Restaurant Brands International (RBI) has announced two significant transactions in China. RBI will acquire Popeyes China for an enterprise value of $15 million, which includes 14 restaurants in Shanghai. This move aims to accelerate growth in the Chinese market, with plans for local team investments and further restaurant development. Additionally, RBI and Cartesian Capital will co-invest up to $50 million in Tims China through convertible notes, increasing RBI's equity ownership to 18%. This funding will be issued in phases, with an initial $40 million at closing. RBI aims to drive growth in the Chinese QSR market, focusing on Popeyes and Tim Hortons brands.

Positive

• RBI is acquiring Popeyes China for $15 million, including 14 restaurants in Shanghai.
• RBI and Cartesian Capital are co-investing up to $50 million in Tims China, boosting RBI's equity ownership to 18%.
• The investments are expected to accelerate growth in China's QSR market, a significant opportunity for RBI.

Negative

• RBI's capital outlay for the two transactions is up to $45 million, a significant financial commitment.

Insights

Financial Analyst

Restaurant Brands International's (RBI) acquisition of Popeyes China and its co-investment in Tims China reflect strategic moves aimed at capturing a larger share of the rapidly growing Chinese quick-service restaurant (QSR) market. This venture involves a capital outlay of up to $45M, indicating RBI's confidence in the region's potential for growth.

From a financial perspective, both transactions present significant implications. The acquisition of Popeyes China for an enterprise value of $15M will allow RBI direct control over expansion efforts, providing them with the flexibility to implement their strategies effectively. This move can lead to a more streamlined approach toward achieving market penetration and brand recognition in China. However, the success of this acquisition heavily relies on RBI's ability to scale operations swiftly and efficiently.

Moreover, the co-investment in Tims China through three-year convertible notes worth up to $50M demonstrates a commitment to long-term growth. By increasing their equity ownership in Tims China to 18%, RBI gains not just financial stake but also greater influence over business decisions, as evidenced by the right to appoint two directors to the Tims China Board. This strategic positioning could drive synergy and operational excellence.

Retail investors should monitor the rate at which Popeyes and Tim Hortons brands scale in China, as rapid and successful expansion could translate into increased revenue and profit margins. However, there are inherent risks, including market competition and operational challenges in a foreign market.

Market Research Analyst

The Chinese quick-service restaurant (QSR) market is one of the largest and fastest-growing globally, making RBI's investments particularly noteworthy. The acquisition of Popeyes China, which currently has 14 restaurants in Shanghai, sets the stage for accelerated growth through localized development and partnerships. As Popeyes China aims to replicate its global success, understanding local consumer preferences and adapting offerings accordingly will be critical.

The co-investment alongside Cartesian Capital in Tims China underscores the importance of leveraging local expertise and capital to drive market penetration. Tims China benefits from RBI's increased ownership and strategic input, which can enhance brand visibility and operational efficiency in a highly competitive coffee market.

For retail investors, these moves signal RBI's proactive approach to capturing market share in China. The potential for high growth is evident, but execution risk remains. Successful localization and strategic partnerships will be key drivers of long-term success.

RBI Acquires Popeyes China and Plans to Accelerate Growth 
Co-investment alongside Cartesian Capital in Tims China Business

TORONTO, July 1, 2024 /PRNewswire/ - Restaurant Brands International Inc. (TSX: QSR) (NYSE: QSR) (TSX: QSP) ("RBI", "Company") announced today two transactions in China, the acquisition of Popeyes China, and the co-investment with Cartesian Capital into the business of TH International Limited ("Tims China") (NASDAQ: THCH). The two transactions reflect RBI's confidence in China, one of the largest QSR markets globally, and its commitment to drive growth in the market.  RBI's total amount of capital outlay will be up to $45M for the two transactions.

RBI has agreed to acquire the Popeyes China business from Tims China on a cash-free debt-free basis based on an enterprise value of $15M. Following the transaction, RBI will own and operate Popeyes China, which opened its first restaurant in August 2023 and has 14 restaurants in Shanghai today. The pace of restaurant growth is expected to ramp up through investments in local teams and restaurant development. Longer-term, RBI expects to bring on local partners to form a more traditional master franchisee, similar to other Popeyes international markets.

To help fuel the growth of Tims China, Cartesian Capital and RBI agreed to invest up to $50M of capital into the Tims China business via three-year convertible notes, of which $40M will be issued at closing with the balance funded over the coming 7 months, subject to certain operational and financial conditions. Of the total, $20M were issued to Cartesian and up to $30M will be issued to RBI, including $20M at close. Following the transaction, RBI will effectively have the right to appoint two directors to the Tims China Board and will see its equity ownership in the business increase to up to 18%, on an as converted basis. The RBI team will continue to work closely with the Tims China management team and Board to drive growth in one of the fastest growing coffee markets in the world.

"China is one of the most compelling long-term market opportunities for both our Popeyes and Tim Hortons brands. Popeyes China is off to a strong start and we are excited to unlock its development potential in one of the largest chicken QSR markets globally. Today's announcement allows Tims China to redouble its focus on quality restaurant development and providing Chinese consumers with our high quality Tims coffee and food offerings," said Rafael Odorizzi, President of Asia Pacific.

These transactions follow the recent appointment of Patrick Siewert as Senior Advisor for Asia-Pacific and showcase RBI's commitment to growth in the region.

About Restaurant Brands International Inc.
Restaurant Brands International Inc. is one of the world's largest quick service restaurant companies with over $40 billion in annual system-wide sales and over 30,000 restaurants in more than 120 countries and territories. RBI owns four of the world's most prominent and iconic quick service restaurant brands – TIM HORTONS®, BURGER KING®, POPEYES®, and FIREHOUSE SUBS®. These independently operated brands have been serving their respective guests, franchisees and communities for decades. Through its Restaurant Brands for Good framework, RBI is improving sustainable outcomes related to its food, the planet, and people and communities.

Forward-Looking Statements
This press release includes forward-looking statements, which are often identified by the words "may," "might," "believes," "thinks," "anticipates," "plans," "expects," "intends" or similar expressions and include statements regarding (1) expectations regarding whether the full amount of Tims China convertible notes will be purchased, (2) expectations regarding Popeyes future success in China and ability to accelerate restaurant growth, (3) expectations regarding the ability and timing for bringing in a local master franchisee for Popeyes China, and (4) expectations regarding the ability to drive growth at Tims China. These forward-looking statements may be affected by risks and uncertainties in the business of RBI, Popeyes China and Tims China and market conditions, and include the following: (1) the risk that the conditions to the additional convertible note purchases will not be satisfied, (2) the risk that Popeyes China will not be able to grow as quickly as expected, if at all, and (4) risks related to competition, macro-economic factors and general risks of doing business in China. This information is qualified in its entirety by cautionary statements and risk factor disclosure contained in filings made by RBI with the U.S. Securities and Exchange Commission and the Canadian securities regulators, including RBI's annual report on Form 10-K for the year ended December 31, 2023. RBI cautions readers that certain important factors may have affected and could in the future affect actual results and could cause actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein. RBI does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date hereof.

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SOURCE Restaurant Brands International Inc.

FAQ

What recent acquisition has RBI made in China?

RBI has acquired Popeyes China for an enterprise value of $15 million.

How many Popeyes restaurants does RBI currently own in Shanghai?

RBI owns 14 Popeyes restaurants in Shanghai.

What is the total amount of capital RBI plans to invest in China?

RBI plans to invest up to $45 million in China for the acquisition of Popeyes China and co-investment in Tims China.

How much will RBI and Cartesian Capital invest in Tims China?

RBI and Cartesian Capital will invest up to $50 million in Tims China via convertible notes.

What percentage of equity ownership will RBI have in Tims China after the investment?

RBI's equity ownership in Tims China will increase to up to 18%.