A leading Chinese financial institution was evaluating an investment in an Asian based western casual dining concept in China. Results to date were disappointing, but the client felt there was enough potential to proceed with a due diligence exercise.
East West’s restaurant consultants were retained as expert advisors to a Private Equity client and worked closely with a global consulting organization to complete a large due diligence exercise in both China and South Korea within a 45 day time constraint. We provided basic analytical direction specific to the restaurant industry to allow for reliable benchmarking with local and global competitors.
We evaluated the opportunity within a three week window through three distinct approaches:
Ability of the current management team in China to execute the business plan
The overall concept acceptance with local consumers in selected Tier 1 and Tier 2 cities
The store-level economics
We found many red flags during the analysis and evaluated the investment to be very high risk closer to a venture capital deal than a private equity investment. We therefore recommended caution with the client making small investment levels to confirm the overall concept economics prior to any major commitment of funds.