Burger King is buying its largest franchisee for $1B

Parent Restaurant Brands International plans to spend $500 million to remodel Carrols Restaurant Group's more than 1,000 locations before reselling them to smaller franchisees.
Burger King
Burger King plans to remodel 600 of Carrols' 1,000 units. | Photo: Shutterstock.

Restaurant Brands International on Tuesday said it plans to acquire Carrols Restaurant Group, the largest franchisee of its Burger King brand, in a deal valued at $1 billion.

RBI also said that it plans to invest $500 million, funded largely by Carrols’ cash flow, to remodel 600 of the franchisee’s 1,000 restaurants. Restaurant Brands will pay $9.55 per share in cash for the shares it doesn’t own in the operator, representing a 23% premium on Carrols’ share price in the 30 days leading up to Tuesday.

RBI already owns 15% of Carrols’ shares, which it acquired in 2012.

Carrols’ existing operations team will run the restaurants. Burger King ultimately plans to refranchise the restaurants to “smaller franchise operators who live in their local communities.” But that is a long-term strategy that the company expects to take five to seven years.

“Today’s announcement is a testament to our more than 24,000 Carrols team members who have helped drive the company to record levels of profitability over the past 12 months,” Carrols CEO Deborah Derby said in a statement. Carrols’ stock was the top performing restaurant stock in 2023, with its valuation soaring nearly 500%.  

The deal highlights a shift in thinking on the part of Burger King, which for years operated under the idea that bigger is better. It once gave Carrols carte blanche to acquire as many locations as possible, and often encouraged other private equity backed operators to buy more locations. Carrols used that capability to amass hundreds of restaurants, ultimately settling on just over 1,000.

But as Burger King struggled, and some of its largest franchisees ran into debt trouble, the company began shifting its focus to smaller operators. RBI Executive Chairman Patrick Doyle, who took that job in 2022, and then new CEO Josh Kobza, have both signaled a desire to focus on smaller operators, who can typically drive to each one of their stores.

That led to questions about Carrols, generally considered one of the better operators in the system, but which operates one out of seven Burger King locations across a wide swath of the U.S.

By acquiring the restaurants, Burger King can spend their cash to speed remodels and then resell them to smaller franchisees over a longer period of time. The brand also believes it will speed its revitalization strategy, called “Reclaim the Flame,” that was announced in 2022.

“Carrols has demonstrated strong and improving restaurant operations over the years,” Tom Curtis, president of Burger King U.S. and Canada, said in a statement. “This acquisition is an exciting accelerator to our Reclaim the Flame plan that is focused on relentlessly pursuing a better experience for our guests. We are going to rapidly remodel these restaurants over the next five years or so and put them back into the hands of motivated, local franchisees to create amazing experiences for our guests.”

Cambridge Franchise Holdings, which controls about 17% of Carrols’ shares and 20% of the shares not held by RBI, has agreed to vote their shares in favor of the transaction. The deal is expected to be complete by the second quarter.

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