The Winner's Column - April 2012

Franchising is bursting (not busting!) out all over these days, with a flurry of activity in financing, mergers and acquisitions, and incentives. Combine that with ongoing signs of a spring thaw in the capital markets and private equity firms unloading cash and loading up on franchise brands (especially restaurants) - and the Winner's Column presents a second special focus on the deal-making, consolidation, and reorganization taking place in franchising. To be considered for next month's Winner's Column, send your news to eddyg@franchiseupdatemedia.com.

Mergers & Acquisitions

TBC Corp. To Acquire Midas
TBC Corp. and Midas Inc. have entered into a definitive merger agreement under which TBC will acquire Midas through an all-cash tender offer valued at about $310 million ($11.50 per share). TBC, based in Palm Beach Gardens, Fla., is one of the nation's largest marketers of automotive replacement tires. Its multi-channel strategy includes being a wholesale supplier to independent regional tire retailers and distributors throughout North America, and operating Carroll Tire, a regional distributor to independent tire dealers across the U.S. Its retail 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 more than 2,250 franchised, licensed, and company-owned shops in 14 countries, including nearly 1,500 in the U.S. and Canada. Midas also owns SpeeDee Oil Change, with 161 auto service centers in the U.S. and Mexico. The deal is expected to close by the end of the second quarter.

Atlanta PE Firm Buys Krystal
Last summer, Krystal, the Chattanooga burger chain founded in 1932, announced that it had retained Piper Jaffray & Co. to market the chain for a potential sale. This March, the plan paid off with the acquisition of the brand by Argonne Capital Group, an investment firm whose portfolio includes more than 350 IHOP, Applebee's, and Stevi B's Pizza restaurants. "Finding the right owner, one that will continue to uphold the qualities of the Krystal brand that have made it a Southern icon, has been an important part of this transition," said Krystal President and CEO Fred Exum. Krystal, with 360 restaurants in 11 states in the South, will remain based in Chattanooga. The brand opened 10 new company‐owned restaurants last year and plans to open more units in 2012.

Unique Pizza and Subs To Acquire Pizza Fusion
Unique Pizza and Subs Corp. has signed a letter of intent to purchase Boca Raton, Fla.-based Pizza Fusion Holdings. Pizza Fusion, started in 2006, is an organic, eco-friendly pizza restaurant franchise concept. "Because Pizza Fusion and Unique Pizza's menus and concepts are so different, we will be able to coalesce our experience and help grow both franchises," said James Vowler, president and CEO of Unique Pizza.

Funding, Finance, & Expansion

Those That Have: Large JIB franchisee Gets $91 Million from GECFF
JIB Management, with 216 Jack in the Box units in California and Texas and 29 Denny's in Northern California, has secured a $91 million senior credit facility from GE Capital, Franchise Finance (GECFF). JIM, led by founder Anil Yadav, also is a developer for Marco's Pizza in California, looking to open 170 units there. The $91 million includes a syndicated $81 million term loan for refinancing debt, and a $10 million development line of credit. Todd Cortell, senior vice president at GECFF, called the deal "one of the largest, non-sponsor-owned franchisee syndications in recent history of restaurant financing." GECFF's relationships with the Jack in the Box and Denny's allowed the deal to close quickly, he said.

Carrols To Buy 278 Burger Kings, Lead Brand's Remodeling Program
Burger King Corp. (BKC) and Carrols Restaurant Group have entered into an agreement for the purchase by Carrols' operating subsidiary, Carrols LLC, of 278 corporate-owned restaurants in Ohio, Indiana, Kentucky, Pennsylvania, North Carolina, South Carolina, and Virginia. Under the agreement, Burger King will get a 28.9 percent equity interest in Carrols, along with cash payments of about $15.8 million (refranchising fees of $9.4 million, inventory of about $2.5 million, and payments to be made over 5 years by Carrols in conjunction with BKC's assignment to Carrols of its right of first refusal on sales of Burger King restaurants by existing franchisees in 20 states). Also as part of the transaction, Carrols will lead the Burger King system in its remodeling program by committing to remodel approximately 450 restaurants over the next 42 months. Carrols, the largest U.S. Burger King franchisee, is currently completing its spin-off to its shareholders of its Fiesta Restaurant Group, which owns and operates the Pollo Tropical and Taco Cabana restaurant brands. Carrols, based in Syracuse, N.Y., has operated Burger King restaurants since 1976. Upon completion of the deal, Carrols will operate 575 of the brand's more than 12,500 restaurants.

Popeyes Franchisee Lands $30 Million from GE Capital To Buy 29 Units
With a new $30 million credit facility from GE Capital, Franchise Finance, Shelton Restaurant Group LLC, a Popeyes Louisiana Kitchen franchisee, is acquiring 29 Popeyes restaurants in the Lafayette, La. area. With this acquisition, the Alexandria, La.-based group will own and operate 30 Popeyes restaurants in Louisiana and Texas. Popeyes, founded in New Orleans in 1972, is the world's number-two QSR chicken restaurant, with about 2,000 locations worldwide.

Togo's Gets $15 Million from FAF for Franchise Growth
Togo's Eateries has announced the formation of a $15 million fund to fuel its development in 2012 and beyond. Both new and existing qualified Togo's franchisees will have access to $10 million for remodels and transfers, and $5 million to build new restaurants. The funding was made available through an agreement between Togo's, Franchise America Finance (FAF), and The Bancorp Bank. Togo's had an unprecedented year in 2011, signing 23 agreements and opening 7 new California restaurants, including a company-owned prototype in Pleasant Hill. This year, Togo plans to open 26 franchise locations and two corporate restaurants and remodel 80 existing restaurants. Founded in 1971, Togo's has 241 restaurants in the Western U.S. and is looking to reach 400 by 2015, primarily through growth in Arizona, California, Nevada, Oregon, and Washington.

Tacala Buys 36 More Taco Bells
Tacala LLC has purchased 34 restaurants in the St. Louis area and 2 in the Knoxville market, raising its total number of Taco Bells to 224 in 8 states. The seller was Taco Bell Corp. One month earlier, Tacala bought 27 Taco Bells, also in St. Louis, from GenXMex Foods Inc., making St. Louis the organization's largest single market (a market where it no presence before these two deals). Tacala also promoted Tim Morrison from COO to president to help guide the company's growth. Morrison, who joined Tacala in 2008, spent 23 years at Taco Bell in operations. The acquisitions were financed by a group led by Wells Fargo, Regions Bank, and Bank of America, with participation by Cadence Bank, Iberia Bank, BBVA Compass, and ServisFirst. Details of the deals were not available. Tacala, based in Vestavia Hills, Ala., also has restaurants in Georgia, Illinois, Kentucky, North Carolina, and Virginia.

Golden Corral Invests in... Itself!
In early March, Cincinnati-based Frisch's Restaurants (120 Frisch's Big Boy restaurants and 29 Golden Corrals in 5 states) agreed to sell all its Golden Corral restaurants and associated real estate to NRD Holdings, a multi-brand operator based in Atlanta. NRD's portfolio includes Popeyes Louisiana Kitchen, Checker's Drive-In, and Domino's Pizza units in Florida, California, Arizona, and Georgia. The deal, which was expected to close by May, took a left turn, or rather a corporate one. Exercising its right of first refusal, Golden Corral matched NRD's offer and is buying the 29 restaurants, which are located in Ohio, Indiana, Kentucky, West Virginia, and Pennsylvania. Today Golden Corral has 97 company-owned restaurants and 388 franchised ones. Bob McDevitt, senior vice president of franchising at Golden Corral, said the chain will be adding six company-owned restaurants and 15 franchises this year. After the newest deal closes (expected before May 29), all of Frisch's restaurants would in Ohio, Indiana, and Kentucky, operating under the Frisch's Big Boy name.

Inventive Incentives

The Dwyer Group Offers Discounts to Police, Firefighters
Dina Dwyer-Owens, whose father Don Dwyer, founder of The Dwyer Group, pioneered the concept behind the IFA's VetFran program, is building on her legacy through a newly created program that gives the nation's police officers and firefighters a leg up in starting their own franchise businesses. Dwyer-Owens, CEO and chair of the company (and most recently famous for her appearance on the "Undercover Boss" TV show), has expanded on her father's vision with the newly created Public Protectors Franchise Advantage (PPFA) program, which offers 20 percent off the minimum franchise fee for any current or former full-time law enforcement officer or firefighter with a minimum of two years' full-time service. "My Dad would have been so proud to see how far VetFran has come," Dwyer-Owens said. "The Public Protectors Franchise Advantage program is the next logical step to help more great people own their own business." To promote the program's launch, The Dwyer Group will waive the initial franchise fee for one base-level franchise (100,000 population) from one of its brands to a qualifying individual. The value will range from $26,000 to $29,500, depending on the brand chosen. Nominations will be accepted until July 1 at www.leadingtheserviceindustry.com/protectors.asp.

Bach to Rock Launches Veterans Incentive Program
Bach to Rock has created a new incentive program that supports U.S. military veterans seeking to own a Bach to Rock franchise. Under the program, the company will waive its franchise fee and offer a 50 percent royalty reduction for the first year of operation for all honorably discharged veterans. Total savings are estimated at approximately $49,000. The offer is part of the IFA's "Operation Enduring Opportunity" program. Bach to Rock is seeking candidates to open franchise locations in the Mid-Atlantic region from New Jersey to North Carolina. Bach to Rock, a music education school for students of all ages, is owned by investment firm Cambridge Information Group.