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Big Burger King franchisee Carrols gets back into the deal game

The $1.5 billion operator is looking at deals again after taking 2020 off, but it is slowing its growth to preserve cash in the coming years.
Photo courtesy of Burger King

Carrols Restaurant Group is getting back into the acquisitions game after largely taking 2020 off.

Speaking at the ICR Conference on Monday, Dan Accordino, CEO of the Syracuse, N.Y.-based Burger King operator, said his company is already looking at a couple of acquisitions it can complete in the first part of the year. He also expects a “robust” pipeline of potential acquisitions in the brand 2021.

“We’re just dipping our toes back in the water again looking for opportunities,” he said. “We’re certainly in an acquisitive mode.”

Still, the big operator is shifting its business. After spending much of the past decade buying just about any available Burger King it could get its hands on, the company is cutting back on its development and acquisitions to generate more cash.

Carrols is Burger King’s largest franchisee, with just over 1,000 locations, and also operates 65 Popeyes units. The company built that business through acquisitions—it acquired an average of 100 restaurants a year for the past eight years.

Much of that had come from a unique right it acquired from Burger King that gave it the right to buy any location that was put up for sale in 16 states. On Friday, Carrols gave up its “right of first refusal,” which will transfer back to the brand.

The company also agreed to eased development and remodeling requirements. “Under this new arrangement, we believe we will have the flexibility to grow our business organically and through acquisitions in a manner that will best optimize our profit growth potential while generating consistent and enhanced free cash flow and keeping our leverage in check,” Accordino said in a statement.

But that doesn’t mean the company is completely abandoning its dealmaking—its agreement with Burger King gives it the ability to acquire as many as 500 locations.

Carrols said it had $60 million in cash at the end of the third quarter. It believes the best use of that cash is to buy additional restaurants—though Carrols did buy back stock last year when it felt the price of its stock was too low.

Accordino expects there to be plenty of restaurants available, at least on the Burger King side. But he appeared less certain about Popeyes. Carrols does not have a development agreement with that brand and expects to open one or two locations in that brand this year.

One issue the company is deciding at this point is how many Burger King locations it will acquire versus Popeyes. “We have to decide how to balance acquisition profiles at Burger King compared to Popeyes,” Accordino said.

Carrols on Monday said that its Burger King same-store sales declined 0.9% in the last three months of 2020—a notable amount given how many restaurants of the chain the franchisee operates. That’s an improvement from the 3.2% decline in October, suggesting sales growth in November and December.

At Popeyes, same-store sales declined 12.9%, a sign that the chain is coming up against brutal comparisons from a year ago. The company generated $1.5 billion in total restaurant sales in 2020, making it one of the only franchisees to generate more than $1 billion in sales.

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