CVC in talks to buy China restaurant chain stake

Walkers passes by a South Beauty restaurant in North China's Tianjin municipality on Dec 1, 2012. [Photo / Asianewsphoto]

A potential deal for CVC Capital Partners to buy a majority stake in a Chinese restaurant chain highlights a growing willingness by smaller China firms to cede control to foreign private equity amid unfavourable IPO prospects.

London-based CVC is in advanced talks to buy a majority holding in South Beauty Investment Co Ltd for $300 million, sources with knowledge of the matter told Reuters.

South Beauty, which operates high-end restaurants that cater to China's business and political elite, had previously hired banks for a Hong Kong IPO worth as much as $200 million that had been planned for this year.

Zhang Lan, founder of South Beauty Investment Co Ltd [Photo/chinadaily.com.cn]

A successful deal would also be the latest in a string of stake acquisitions in Chinese restaurant chains by foreign private equity.

Owners of China's small and medium sized companies prefer to exit their investments through IPOs, which tend to generate higher returns.

But stricter regulations for offerings in China, a choppy public market in Hong Kong and tighter credit conditions are helping private equity firms, which are unable to exit minority stakes through public listings, convince owners to give up control, sources have said.

Under the deal being discussed, CVC is buying 69 percent of South Beauty while the restaurant chain's founder Zhang Lan will own a 31 percent stake, Basis Point, a Thomson Reuters publication, reported on Tuesday.

We recommend

South Beauty says it will not go public in near future

South Beauty works for listing to fuel expansion

Zhang Lan, Chairwoman of South Beauty Co Ltd