Big Burger King operator Carrols Restaurant Group adds a 2nd brand

The $238 million deal includes 55 Popeyes locations—a new brand for the company—and 166 Burger King restaurants.
Photograph: Shutterstock

Giant Burger King operator Carrols Restaurant Group is getting into a second brand with the purchase of 55 Popeyes Louisiana Kitchen locations as part of a $238 million deal that will give the company an additional 221 restaurants.

Carrols will acquire the restaurants from Cambridge Franchise Holdings, along with 166 Burger King locations. The restaurants are in 10 states throughout the South.

Carrols’ stock soared 19% on Wednesday.

The deal is being structured as a merger. Cambridge is controlled by investment firm Garnett Station Partners and is owned by family office investors.

Cambridge will receive Carrols stock in the deal, giving the company about 24% of Carrols shares.

Carrols will also assume $100 million worth of Cambridge debt. The deal is valued at between 5 and 5.5 times Cambridge’s earnings before interest, taxes, depreciation and amortization, or EBITDA.

The purchase follows comments Carrols CFO Paul Flanders made at the ICR Conference in Orlando, Fla., last month, suggesting the company could consider a second brand. Carrols is Burger King’s largest franchisee, a behemoth that generates well over $1 billion in annual sales and now operates more than 1,000 Burger King and Popeyes locations following the Cambridge deal.

“There’s an advantage to diversification and opportunities to grow,” Flanders said. “It’s something that’s going to be on our radar.”

Carrols acquired the “right of first refusal” to buy Burger King locations in 20 states from the franchisor in 2012. As part of the deal it received prior approval from the brand to operate 1,000 locations. The right of first refusal enables the company to buy any Burger King restaurants that are put up for sale in those markets.

With the 1,000-unit limit reached, Carrols has entered into a new area development agreement with Burger King that will enable it to buy up to 500 additional locations. That also expands the company’s right of first refusal to additional states, including Arkansas, Louisiana, Mississippi and Tennessee.

Carrols has relinquished its right in several other states: Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey, New York and West Virginia. Carrols has also agreed to develop 200 new Burger King locations over the next six years and remodel additional locations in the “Burger King of Tomorrow” image, which includes kiosks and outdoor digital menu boards.

Carrols will receive the right of first refusal for Popeyes in Tennessee and Kentucky.

Dan Accordino, Carrols CEO, called the deal a “transformational transaction” for his company. “It further strengthens our position in the Burger King system and provides us the opportunity to continue executing our Burger King acquisition and expansion strategy.”

He also said that the deal provides it with a “strong, growing second brand in Popeyes” from the Cambridge platform.

Popeyes, like Burger King, is owned by Restaurant Brands International.

The Popeyes locations are in Kentucky, Louisiana, Mississippi and Tennessee, and the deal includes a contract to build 70 new locations over the next six years. “It provides Carrols with another avenue for growth, including new restaurant development given Cambridge’s development pipeline and expansion through the opportunity to acquire additional Popeyes restaurants in the future,” Accordino said.

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