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SO WHAT EXACTLY has former trade unionist turned politician turned businessman Cyril Ramaphosa paid for the privilege of operating McDonald’s in South Africa for the next 20 years? He’s not telling. Neither is McDonald’s. Both cite their unlisted status in SA as reason enough to keep details of their recent transaction private. The process to sell the McDonald’s SA operating licence has taken about two years.
Ramaphosa had been on an initial list of 40 possible buyers, whittled down to 10 and later to two. Finally, and perhaps unsurprisingly, Ramaphosa – long-rumoured to be the front-runner on the deal – was selected. Ramaphosa is listed in McDonald’s speak as the “Developmental licensee” but has the financial backing of Shanduka, the private investment holding company he founded and chairs.
Finweek understands the value of the deal isn’t far either side of R1bn; sources won’t be more specific. But the deal is structured to allow McDonald’s Corporation to effectively disinvest from SA but leave its brand and subsequent royalty stream in place. The deal is also understood to include funds for a revamp of a substantial number of the group’s 145 local outlets. Like global rival Yum Brands’ plan to significantly up its South African footprint, the local McDonald’s under Ramaphosa’s control, plans to almost double that presence over the next five years.
Whatever the price, the financial commitment is likely to be substantial. The McDonald’s franchise in SA since 1995 has hardly shot the lights out – opening an average of just nine stores a year since its high profile post-apartheid arrival in this country. Analysts say McDonald’s decision to offer Ramaphosa the operating licence is an admission it has experienced problems in SA and has a more lucrative application for the cash it will generate from the sale.
However, the group contends its arrangement with Ramaphosa isn’t unusual: it has similar arrangements in the 117 countries in which it operates. The licensee owns all the assets in that particular market and in terms of the contracts between them and the corporation there can be no visible change for consumers in the way the outlets function.
The acquisition of all the assets and not just the brand begs the question as to whether this is a fast food deal or a property deal. McDonald’s owns some of the most valuable property in prime sites in cities worldwide. It isn’t only a franchise business but a landowner and landlord to franchisees, thereby extracting a double revenue stream in terms of royalties and rentals. Research of McDonald’s global asset base suggests land value alone accounts for around 25% of its NAV, giving its global diversification.
The McDonald’s addition to Ramaphosa’s growing business empire is interesting. For example, Shanduka Property states on its website its goal is “To be the premier black-controlled property investment house” (in SA). The acquisition of prime sites, such as the property on the corner of Grayston Drive and Rivonia Road in Johannesburg’s Sandton, is an example of how Ramaphosa now owns a key piece of real estate in an area where a growing number of high-rise buildings are being developed. He can move the McDonald’s or simply develop the sky above it, adding a new revenue stream to an already lucrative site.
“It’s as much about burgers as it is about property,” says Martin Edge, MD of corporate finance at Standard Chartered South Africa, which advised McDonald’s on the deal and which has many facets beyond even that transaction.
Ramaphosa brushed aside concerns about a potential conflict of interest in terms of Shanduka’s existing fast-moving consumer goods (FMCG) business, in which it bottles and distributes Coca-Cola products, not only to McDonald’s but also its competitors.
There’s also the possible listing of Shanduka or some of its subsidiaries to consider. Shanduka CEO Phuti Malabie told Reuters: “Perhaps certain portions of our business could maybe be listed. It’s something we’re looking at, as to whether it would be the whole of Shanduka or some divisions.”
Shanduka has spent the past decade quietly building an impressive portfolio of assets throughout SA’s broader economy, with exposure to financial services, property, manufacturing, resources, energy, beverages and new energy projects. It’s become an investment company of substance, owning stakes in Standard Bank, Alexander Forbes, Bidvest, Seacom, 70% of the Coca-Cola bottling operation in SA and even a piece of advertising agency Hunt Lascaris.
Whether McDonald’s SA finds its way into any kind of Shanduka listing remains to be seen.
Ramaphosa had been on an initial list of 40 possible buyers, whittled down to 10 and later to two. Finally, and perhaps unsurprisingly, Ramaphosa – long-rumoured to be the front-runner on the deal – was selected. Ramaphosa is listed in McDonald’s speak as the “Developmental licensee” but has the financial backing of Shanduka, the private investment holding company he founded and chairs.
Finweek understands the value of the deal isn’t far either side of R1bn; sources won’t be more specific. But the deal is structured to allow McDonald’s Corporation to effectively disinvest from SA but leave its brand and subsequent royalty stream in place. The deal is also understood to include funds for a revamp of a substantial number of the group’s 145 local outlets. Like global rival Yum Brands’ plan to significantly up its South African footprint, the local McDonald’s under Ramaphosa’s control, plans to almost double that presence over the next five years.
Whatever the price, the financial commitment is likely to be substantial. The McDonald’s franchise in SA since 1995 has hardly shot the lights out – opening an average of just nine stores a year since its high profile post-apartheid arrival in this country. Analysts say McDonald’s decision to offer Ramaphosa the operating licence is an admission it has experienced problems in SA and has a more lucrative application for the cash it will generate from the sale.
However, the group contends its arrangement with Ramaphosa isn’t unusual: it has similar arrangements in the 117 countries in which it operates. The licensee owns all the assets in that particular market and in terms of the contracts between them and the corporation there can be no visible change for consumers in the way the outlets function.
The acquisition of all the assets and not just the brand begs the question as to whether this is a fast food deal or a property deal. McDonald’s owns some of the most valuable property in prime sites in cities worldwide. It isn’t only a franchise business but a landowner and landlord to franchisees, thereby extracting a double revenue stream in terms of royalties and rentals. Research of McDonald’s global asset base suggests land value alone accounts for around 25% of its NAV, giving its global diversification.
The McDonald’s addition to Ramaphosa’s growing business empire is interesting. For example, Shanduka Property states on its website its goal is “To be the premier black-controlled property investment house” (in SA). The acquisition of prime sites, such as the property on the corner of Grayston Drive and Rivonia Road in Johannesburg’s Sandton, is an example of how Ramaphosa now owns a key piece of real estate in an area where a growing number of high-rise buildings are being developed. He can move the McDonald’s or simply develop the sky above it, adding a new revenue stream to an already lucrative site.
“It’s as much about burgers as it is about property,” says Martin Edge, MD of corporate finance at Standard Chartered South Africa, which advised McDonald’s on the deal and which has many facets beyond even that transaction.
Ramaphosa brushed aside concerns about a potential conflict of interest in terms of Shanduka’s existing fast-moving consumer goods (FMCG) business, in which it bottles and distributes Coca-Cola products, not only to McDonald’s but also its competitors.
There’s also the possible listing of Shanduka or some of its subsidiaries to consider. Shanduka CEO Phuti Malabie told Reuters: “Perhaps certain portions of our business could maybe be listed. It’s something we’re looking at, as to whether it would be the whole of Shanduka or some divisions.”
Shanduka has spent the past decade quietly building an impressive portfolio of assets throughout SA’s broader economy, with exposure to financial services, property, manufacturing, resources, energy, beverages and new energy projects. It’s become an investment company of substance, owning stakes in Standard Bank, Alexander Forbes, Bidvest, Seacom, 70% of the Coca-Cola bottling operation in SA and even a piece of advertising agency Hunt Lascaris.
Whether McDonald’s SA finds its way into any kind of Shanduka listing remains to be seen.
