CVC in talks to buy China restaurant chain stake

The deal would follow one this year by Swedish firm EQT Partners to take majority control of RCS Group Co for around $170 million. EQT bought stakes from both the Chinese owner and private equity backer Warburg Pincus, sources told Reuters.

RCS has franchise rights for ice-cream vendor Dairy Queen and one of China's biggest pizza chains, Papa John's.

Deals done last year include Unitas Capital paying $40 million to buy majority control of Babela's Group, which runs Italian, Cantonese and Taiwan-style restaurants, from investors including Carlyle Group. General Atlantic acquired a stake in hot pot chain Xiabu Xiabu from private equity firm Actis.

South Beauty

A successful deal would give Chinese private equity firm CDH Investments an opportunity to exit from its investment, the sources added. CDH bought an unspecified stake in South Beauty in 2008 for $29.3 million, according to Thomson Reuters data.

South Beauty was founded in 2000 and has restaurants nationwide including in Beijing, Shanghai, Shenzhen and Shenyang.

The restaurant chain had earnings before interest, tax, depreciation and amortization (EBITDA) of 308.5 million yuan ($50.7 million) for the 12 months ended July 2013, Basis Point reported.

A deal for 69 percent of South Beauty at $300 million would represent an EV/EBITDA ratio of around 8.5. Listed comparables trade at 7.76, according to Thomson Reuters data.

CVC has hired Bank of America Corp as an advisor, and the bank is arranging loan financing of $140 million to back the acquisition, Basis Point said.

Bank of America and CVC declined to comment. South Beauty did not reply to an email requesting comment. Sources declined to be identified as the discussions were confidential.

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Zhang Lan, Chairwoman of South Beauty Co Ltd