The larger Flynn Restaurant Group gets, the bigger the deals it must do to generate the kind of growth it has become accustomed to since its founding in 1999.
But it will be awfully difficult to top the one it is currently working on.
The company, based in San Francisco and overseen by Chairman and CEO Greg Flynn, is trying to buy NPC International, the largest franchisee in the Pizza Hut and Wendy’s systems. Among franchisees, it would be the equivalent to McDonald’s buying Starbucks, a monster combination unlike anything the sector has seen, and one that would create one of the very largest restaurant operators in the U.S.
Flynn Restaurant Group, or FRG, operates 1,200 locations in the Applebee’s, Arby’s, Panera and Taco Bell systems. It generated $2.3 billion in sales last year, according to court documents. That makes it the largest franchisee in the U.S., according to the Restaurant Finance Monitor.
No. 2? NPC International, owner of some 900 Pizza Hut and nearly 400 Wendy’s units which did $1.6 billion in sales, according to the Monitor.
To put that into perspective, the franchisees’ combined sales of $3.9 billion are about the same as the U.S. system sales for Arby’s. That would also make FRG one of the 5-10 largest restaurant operators in the country in terms of sales.
With about 2,500 units, a Flynn-NPC combo company would operate about the same number of locations as Chipotle Mexican Grill. Indeed, based on units operated, FRG-NPC would be the third-largest restaurant operator in the U.S., according to data from Restaurant Business sister company Technomic.
There are roadblocks, to be sure. Foremost among them is Wendy’s objection to the sale, suggesting some difficult negotiations between the company and Flynn over various issues—namely, Flynn’s operation of Panera and Arby’s units, as well as commitments for remodels and new units.
Maybe a bigger roadblock, however, is the presence of a lot of other bidders. Well over 50 companies are interested in some or all of NPC’s restaurants. It could be easy to see a combination that bests the $837 million winning bidders would have to come up with to displace FRG’s bid—including up to $20.4 million in breakup fees if the franchisee isn’t the winning bidder.
Still, based on indications from filings it appears Flynn has an agreement with Pizza Hut to become a franchisee and believes any issues with Wendy’s are “solvable,” meaning there is a high likelihood that FRG gets the deal done. “Flynn is laser-focused on continuing to engage with all parties on a fully consensual path forward,” FRG attorneys wrote in a court filing.
Integrating NPC into FRG would be no small feat. But FRG believes its operating style and history give it the unique ability to add a company the size of NPC.
FRG was created to be “scalable,” with what it calls a “state-and-federal” operating model that gives its operating divisions more flexibility in its operations. There are some overarching rules that cover the entire company, while the different operating divisions can make their own decisions.
“This model was purposefully designed to be highly scalable, to accommodate additions without shifts in operating methods, and to allow for the introduction of new markets with limited incremental overhead and/or disruption to the business,” FRG said.
That allowed FRG to swallow the 368-unit Arby’s operator US Beef back in 2018. In a court filing, FRG said it has “transformed the acquired restaurants into some of the best-performing locations in the Arby’s system.” That makes FRG “the only operator in the industry with recent experience integrating restaurant concepts of this size and scale,” the filing said.
Whether this deal gets done remains to be seen. With well over 50 potential bidders the auction, or auctions, should be substantial. But if Greg Flynn wins the bidding, the result would create a uniquely huge franchisee.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.