Money Matters

Franchising is bursting (not busting!) out all over this spring, with a flurry of activity in financing, M&A activity, and franchisee incentives. Combine that with ongoing signs of a thaw in the capital markets and private equity firms unloading cash by loading up on franchise brands (especially restaurants. This new column presents an ongoing focus on the deal-making, consolidation, and reorganization taking place in franchising. To be considered for next month’s newsletter, please send your news to


Denny’s Establishes New Five-Year, $250 Million Bank Credit Facility
Denny’s has entered into a new five-year, $250 million senior secured bank credit facility, composed of a $190 million term and a $60 million revolving line of credit. The new facility refinances Denny’s senior secured debt from September 2010 and amended in March 2011, which had a term loan originally in the amount of $250 million and a $60 million revolver, and is expected to yield annualized interest savings of approximately $5 million. The lenders were led by Wells Fargo Securities, Regions Capital Markets, and GE Capital Markets. “In addition to reducing interest costs, this refinancing allows the company to further strengthen its balance sheet with more flexibility to create additional value for stockholders,” said John Miller, Denny’s president and CEO. Denny’s operates 1,685 franchised, licensed, and company-owned restaurants across the U.S., Canada, Costa Rica, Mexico, Honduras, Guam, Curaçao, Puerto Rico, and New Zealand.

Diversified Restaurant Holdings Completes $16 Million Credit Facility
Diversified Restaurant Holdings, the owner, operator, and franchisor of Bagger Dave’s Legendary Burgers Tavern and a leading franchisee for Buffalo Wild Wings, has entered into a new, seven-year senior secured term loan with RBS Citizens. The loan will be used to repay approximately $15.7 million, or substantially all, of the company’s current outstanding senior debt as well as the break-up cost for interest rate swap agreements that were used to fix a portion of the rates associated with its previous loan agreements. The remaining $300,000 will be used for working capital and to support the company’s growth strategy. The deal is expected to reduce debt service costs by more than $750,000 annually. Between its two concepts, the company currently operates 28 restaurants in Michigan and Florida. Diversified also announced the signing of long-term leases for a new Bagger Dave’s in Bloomfield, Mich., and a new Buffalo Wild Wings in Largo, Fla. DRH operates 22 Buffalo Wild Wings restaurants and expects to build one to two additional units per year in fulfillment of its 32-store area development agreement wih the brand. At the end of 2011, there were six Bagger Dave’s operating in Michigan with two additional locations under development and one franchise location planned for Missouri. With this new location, the company expects to have at least 10 Bagger Dave’s operating by the end of 2012.

School of Rock Receives Additional $5 Million for Development
For the second time since receiving an initial investment from private equity firm Sterling Partners in 2009, School of Rock has received an additional capital investment from its current investors. The $5 million investment, led by Sterling, will help the brand expand its growth initiatives in North America and accelerate its franchise development efforts. The company plans to triple the number of its schools by 2015 and anticipates increasing enrollment by more than 50 percent in the next two years. Founded in Philadelphia in 1998, School of Rock operates more than 80 company-owned and franchised schools in 26 states and Mexico with several new schools opening in 2012. Sterling Partners, a private equity firm founded in 1983, has nearly $5 billion of assets under management.

Mergers & Acquisitions

P.F. Chang’s To Be Acquired by Centerbridge Partners for $1.1 Billion
P.F. Chang’s China Bistro has entered into a definitive merger agreement with private equity firm Centerbridge Partners in a transaction valued at approximately $1.1 billion. Under the terms of the merger agreement, P.F. Chang’s will become a private company, with Centerbridge acquiring all its outstanding shares of common stock for $51.50 per share in cash, a premium of approximately 30 percent over the stock’s average closing share price for the 30 days ended April 30. “We look forward to working with Centerbridge to further strengthen the company and our growing P.F. Chang’s, Pei Wei, True Food Kitchen, and Global Brands businesses,” said Rick Federico, chair and CEO of P.F. Chang’s. Under the terms of the agreement, it is anticipated that Centerbridge will commence a tender offer for all of the outstanding shares of the company no later than May 15. P.F. Chang’s, which first opened in Scottsdale in 1993, was named for its founders, Paul Fleming and Philip Chiang. Centerbridge Partners is a private investment firm based in New York City with approximately $20 billion in capital under management.

TBC Finalizes $310 Million Midas Acquisition
TBC Corp. has completed the acquisition of Midas, Inc. through one of its wholly owned subsidiaries, with Midas being the surviving corporation. The merger was the final step in the acquisition process. The transaction is valued at approximately $310 million, including the assumption of approximately $137 million in debt and pension liabilities. TBC, based in Palm Beach Gardens, Fla., is one of the nation’s largest marketers of replacement tires. Its multi-channel strategy includes being a wholesale supplier to independent regional retailers and distributors throughout North America, and operating Carroll Tire, a regional to independent tire dealers across the U.S. Its group operates more than 1,200 franchised and company-owned tire and automotive service centers under the brands Tire Kingdom, Merchant’s Tire & Auto Centers, NTB-National Tire & Battery, and Big O Tires. TBC is owned by Sumitomo Corp. of America, the largest subsidiary of Sumitomo Corp., one of Japan’s major integrated trading and investment businesses. Midas has nearly 2,250 franchised, licensed, and company-owned shops in 13 countries, including nearly 1,500 in the U.S. and Canada. Midas also owns SpeeDee Oil Change, with 160 auto service centers in the U.S. and Mexico.

Ruby Tuesday To Buy Lime Fresh for $24 Million
According to published reports, Ruby Tuesday Inc. has agreed to acquire Lime Fresh Mexican Grill for $24 million. As part of the sale, Lime Fresh founder and CEO John Kunkel will join Ruby Tuesday’s board, step down as CEO of Lime Fresh, and retain ownership of his original South Beach Miami location as a franchisee. In 2010, Ruby Tuesday became a master franchisee of Lime Fresh as a way to bolster sagging revenues, and operated four Lime Fresh locations before the acquisition. Following the acquisition of Lime Fresh and its seven company-owned restaurants, Ruby Tuesday plans to add another 20 units in 2013 and 30 more in 2014, all company-owned, according to Sandy Beall, founder and CEO of Ruby Tuesday. Lime Fresh has 15 locations in all, including franchised Kunkel, who has already started two new brands under a separate company, 50 Eggs Restaurant Group (Yard Bird Southern Table & Bar and Swine Southern Table & Bar), said he also has two more limited-service concepts under development. Ruby Tuesday also announced plans to close up to 27 underperforming locations in the near future. Ruby Tuesday, based in Maryville, Tenn., operated 740 corporate locations at the end of the first quarter, with franchisees operating another 85 units in the U.S. and internationally.

Growth & Development

Batteries Plus Completes Record Development Year
Batteries Plus has reported another record year in 2011, including the opening of its 500th store. In 2011, the company opened more than a store per week, totaling 59 by year-end, and had a record year of franchise agreement signings for 71 new stores. With a 44 percent increase in store count over the past 3 years, and with same-store sales growing an average of 12.4 percent over that same span, Batteries Plus, which began franchising in 1992, now has more than 500 locations in 46 states and Puerto Rico.

New Brands

United Franchise Group Launches SuperGreen Solutions
SuperGreen Solutions, which opened its first corporate-owned location in North Palm Beach, Fla., in 2011, announced plans to expand nationwide through franchising. SuperGreen Solutions, a joint venture with United Franchise Group (UFG), offers homeowners and businesses simple to control their usage, along with energy-efficient solutions including ventilation, skylights, solar power, solar hot water, and wind power. The pilot store generated more than $775,000 in sales in its first eight months. Sean Cochran is president of SuperGreen Solutions. UFG, a $500 million franchising company with 25 years of experience and 1,400 franchise locations in more than 50 countries, has five brands: Signarama, EmbroidMe, Billboard Connection, Plan Ahead Events (a home-based event planning business), and TransWorld Business Advisors, a business brokerage and franchise development services firm. In 2010, UFG developed nearly 200 new franchises and was looking to add up to 300 new franchise locations in 2011.

Inventive Incentives

Cousins Subs Launches Giveback Program for New Multi-Unit Deals
To spark franchise growth, Cousins Subs has announced its Founder’s Program, which will put nearly $100,000 back into the hands of franchisees who invest in three to five Cousins Subs properties. The program, created to redirect all franchise fee payments into store marketing and sales-driving initiatives, is available to those making an initial investment in a Cousins Subs franchise in a new market. In turn, Cousins Subs will reinvest all franchise fees ($25,000 for the first store and $17,500 for each additional store) into local store marketing for that property. Currently, new Cousins Subs stores invest $10,000 in marketing per store. The company will also offer a Co-Founder’s Program for those investing in three-unit ownership, a $60,000 marketing investment over three years. “Rather than take these initial franchise fees to revenue, we will look to reinvest these dollars into new market growth in an effort to capture more market share for our new investors, and to do so as soon as the franchisee opens its locations,” said Vice President of Development Joe Ferguson. In 1972, Bill Specht and his cousin opened the first Cousins Sub Shop in Milwaukee. Now celebrating its 40th anniversary, Cousins Subs and its franchisees operate about 150 stores in six states and are embarking on an expansion plan.

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