Money Matters - July 2012

Franchise finance is bursting – not busting – out all over, with a flurry of activity in financing, M&A activity, and IPOs. With ongoing signs of a steady thaw in the capital markets, and private equity firms unloading cash by loading up on franchise brands (especially restaurants), we present a monthly focus on the deal-making, consolidation, and reorganization taking place in franchising in 2012. To be considered for next month, please send your news to eddyg@franchiseupdatemedia.com.

Argonne Capital Buys 50 More Applebee’s
Argonne Capital Group LLC has acquired 50 franchised Applebee’s Neighborhood Grill & Bar restaurants in Florida. The deal follows last year’s acquisition by Argonne of 40 Applebee’s units in the Atlanta area. Argonne also owns and operates 8 Applebee’s in San Antonio, bringing its total to 98. Argonne, a private equity firm based in Atlanta, acquired the Florida units and development rights in Tampa and Orlando from Casual Restaurants Concepts Inc. and CRC II LLC. The purchase was made through Argonne subsidiary Summit Restaurant Group LLC and Neighborhood Restaurant Partners Florida LLC. Terms of the deal were not disclosed. Applebee’s said it is approaching its goal of becoming an almost-all-franchised brand. Argonne also owns and operates 254 IHOP restaurants, making it the country’s largest IHOP franchisee. Both Applebee’s and IHOP are part of DineEquity, which has more than 3,500 restaurants in 18 countries. Argonne’s portfolio also includes Stevi B’s Pizza Buffet and Krystal, as well as the Summit Restaurant Group, which together generate annual sales of more than $1 billion.

Wendy’s To Buy Back 30 Restaurants in Texas as Company Stores
Wendy’s Co. announced plans to buy 30 restaurants in Austin for $19.8 million from several franchisees. The sellers are Pisces Foods LP, Near Holdings LP, and David and Jason Near. The Nears, veteran Wendy’s franchisees, are the sons of former Wendy’s CEO and Chairman Jim Near, and David Near served as Wendy’s COO from 2006 to 2008. Under the terms of the deal, the Nears reportedly will retain ownership of the real estate for 23 of the units and lease it back to Wendy’s.

Aussie Brand Pie Face Gets $15M for U.S. Growth from Steve Wynn
Pie Face USA, a subsidiary of Australian café-bakery chain Pie Face Australia, has received $15 million for U.S. expansion from casino-hotel mogul Steve Wynn, CEO of Las Vegas-based Wynn Resorts. The investment gives Wynn about 43 percent of issued and outstanding shares of Pie Face USA’s common stock in a private placement, and the right to appoint two directors to the company’s board. Pie Face USA, open 24 hours, 7 days a week, recently opened its first U.S. store in New York, the city that never sleeps, at 1691 Broadway, and has signed leases for four more. The company also has built a 6,000-s.f. commissary in Brooklyn in preparation for its initial expansion of 10 to 15 units in the NYC area (all 24/7), followed by a national rollout. Pie Face USA serves hand-made gourmet meat pies, sweet pies, sausage rolls, sandwiches, wraps, soups, mashed potatoes and gravy, quiche, pastries, muffins, cookies, brownies, and other baked goods in addition to espresso and coffee under its “Wake Me Up!!!” brand. Pie Face Australia, a bakery-café concept founded in 2003, has about 75 company-owned and franchised units in Australia.

Granite City Food & Brewery Lands $6.5M To Fuel Growth
Concept Development Partners (CDP), controlling shareholder of Granite City Food & Brewery, has invested an additional $6.5 million in the brand in exchange for 3.125 million shares of Granite City’s common stock. CDP had previously invested $9 million. Granite City also announced that its credit agreement with Fifth Third Bank has been increased from $10 million to $12 million. The additional funding will be used to remodel the brand’s 27 stores in 13 states, rework the menu, and accelerate unit growth. Last November, Granite City bought its first Cadillac Ranch All-American Bar & Grill restaurant, and since then has purchased five more, along with that brand’s intellectual property. Minneapolis-based Granite City, founded by Steve Wagenheim, opened its first restaurant in 1999.

Edible Arrangements, Catterton Partners Enter Strategic Partnership
Edible Arrangements has announced a strategic partnership with Catterton Partners, a consumer-focused private equity firm. The deal includes a capital investment by Catterton that will be used to support the expansion of the brand globally through its next phase of growth. Terms of the transaction were not disclosed. The partnership also brings resources in strategy, customer relations, and supply chain management, said Edible Arrangements founder and CEO Tariq Farid. No changes in management are planned. In 2011, the company opened 86 new stores, including 10 locations internationally, and expects to open more than 100 new domestic and international units this year. The company has recorded 11 consecutive years of comparative store sales increases. Founded in 1999 by brothers Tariq and Kamran Farid, the company has more than 1,100 franchise locations open or under development worldwide. Catterton’s other investments include Restoration Hardware, Cheddar’s and Noodles restaurants, Frederic Fekkai, Build-A-Bear Workshop, Kettle Foods, Odwalla, and P.F. Chang’s China Bistro.

Merchant Cash and Capital Offers New Financing Program
A new program using monthly sales for cash advances could be just what the money doctor ordered for some franchised businesses. Merchant Cash and Capital’s (MCC) new cash advance financing program for businesses that do not accept credit cards (or that accept only a limited volume of credit card processing) makes cash available for businesses that don’t qualify for traditional cash advances and those who didn’t previously qualify for financing through MCC, which was based on credit card statements. How it works: Business owners give MCC online access to view their bank accounts, and MCC can finance up to 100 percent of their monthly sales as a cash advance. To pay back the cash advance, MCC then takes a percentage of future deposits made into the account. MCC reviews an eligible company’s monthly revenue and provides them with a merchant cash advance in as soon as 3 to 5 business days. Eligible companies must have been in business for at least two years and have a minimum of $25,000 monthly revenue. MCC specializes in restaurants, learning centers and schools, healthcare facilities, manufacturers, professional services, and more.