Fast-Food Chain Expects Purchase of Carrols Restaurant Group To Accelerate Remodeling
Burger King’s parent is acquiring the fast-food chain’s largest U.S. franchisee, an operator of more than 1,000 of its eateries, in a deal valued at $1 billion as part of the company’s turnaround drive to rapidly upgrade and remodel its restaurants.
Toronto-based Restaurant Brands International said it reached an agreement to buy Carrols Restaurant Group, headquartered in Syracuse, New York. After the transaction closes, Restaurant Brands said Tuesday, it will spend $500 million to update about 600 of Carrols’ Burger King locations.
In the deal, Restaurant Brands will purchase all of Carrols’ issued and outstanding stock that it doesn’t already own for $9.55 per share in an all-cash transaction, or an aggregate total enterprise value of about $1 billion. Restaurant Brands, the holding company that owns Miami-based Burger King, and its affiliates currently holds roughly 15% of Carrols’ outstanding equity. The transaction is expected to be completed in the second quarter.
Carrols is one of the largest restaurant franchisees in North America, as well as the biggest U.S. Burger King franchisee, operating 1,022 of its eateries in 23 states. Its holdings include 60 Popeyes Louisiana Kitchen restaurants in six states; Restaurant Brands owns Popeyes as well as Burger King. Carrols generated $1.8 billion of system sales during the 12 months ended Sept. 30.
Burger King — the world’s second-largest fast-food hamburger chain behind No. 1 McDonald’s — has been trying to mount a turnaround in its competitive sector of the restaurant industry. There are more than 19,000 Burger King locations in more than 100 countries and U.S. territories, and almost 100% of them are owned and operated by independent franchisees. In the past year or so some of its bigger franchise groups filed for bankruptcy protection.
Finding the ‘Flame’
Burger King now is encouraging franchise ownership by smaller and more local groups as it looks to step up service and operations and get restaurants remodeled. The pending acquisition supports the company’s “Reclaim the Flame” initiative to accelerate sales growth and drive franchisee profitability. The deal follows Burger King’s initial $400 million investment, unveiled in September 2022, to drive high-quality remodeling, improve operations, enhance marketing, and support its technology and digital priorities.
“Carrols has demonstrated strong and improving restaurant operations over the years,” Tom Curtis, president of Burger King U.S. and Canada, said in a statement. “This acquisition is an exciting accelerator to our ‘Reclaim the Flame’ plan that is focused on relentlessly pursuing a better experience for our guests. We are going to rapidly remodel these restaurants over the next five years or so and put them back into the hands of motivated, local franchisees to create amazing experiences for our guests.”
On a conference call Tuesday morning, Curtis said, “This presents an opportunity for us to really take charge of the Burger King U.S. image transformation and … proactively drive that shift to a more aligned group of operators.”
Burger King expects to accelerate Carrols’ current pace of remodeling to bring the acquired portfolio to a “modern image” over the next five years, according to Restaurant Brands’ statement. To do so, Burger King said, it plans to invest about $500 million, funded by Carrols’ operating cash flow, to remodel roughly 600 acquired restaurants that haven’t been modernized yet.
Carrols, in partnership with Burger King’s operations teams, will run the acquired restaurants, according to Restaurant Brands.
Re-Franchising in the Works
Burger King ultimately plans to re-franchise the vast majority of the portfolio to new or existing smaller franchise operators that live in their local communities. Following re-franchising the acquired restaurants, which is expected to be completed in five to seven years, Burger King plans to retain a company-owned restaurant portfolio of a couple hundred restaurants for innovation, training, and operator-development purposes.
“This is a terrific example of our commitment to put our capital to work to accelerate growth and support Tom and his team in their broader efforts to have a more competitive Burger King restaurant base,” Restaurant Brands CEO Josh Kobza said in a statement about the Carrols acquisition.
Restaurant Brands 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 100 countries. In addition to Burger King and Popeyes, Restaurant Brand’s portfolio includes Tim Hortons and Firehouse Subs.
For the Record
JPMorgan Chase acted as financial adviser, and Paul, Weiss, Rifkind, Wharton & Garrison acted as legal advisers to Restaurant Brands. Jefferies acted as financial adviser, and Milbank acted as legal adviser to a special committee of Carrols’ board.