Roark Capital acquired its 21st restaurant chain this week in Dave’s Hot Chicken, a deal long expected. As our Lisa Jennings reported, the deal is expected to help the fast-casual chain expand into international markets.
There is also this: Dave’s wants to go public, at some point, probably in three years. As such, the brand is not being paired with anything else, at least not yet, which suggests a Wingstop-like public offering, potentially in 2028.
That would be a rarity, at least for Roark. The Atlanta-based private-equity firm has been buying up restaurant chains for nearly a quarter-century now, and it has orchestrated precious few exits over that period.
Among its restaurant investments, Roark has taken one company public in the remarkably successful chicken-wing chain Wingstop. It has sold a couple of others on the budget rack in Naf Naf Grill and Corner Bakery. Most of its other acquisitions have either stayed the course or been folded into one of its two multi-brand operating companies, GoTo Foods (Auntie Anne’s, McAlister’s Deli, Cinnabon, etc.) or Inspire Brands (Dunkin’, Arby’s, etc.).
All of which has enabled the company to amass a massive portfolio. Roark’s restaurant investments alone generated $52 billion in U.S. system sales last year, not to mention a few billion in other markets.
That makes it a close second in terms of total domestic restaurant sales, behind McDonald’s and ahead of giants Yum Brands and Restaurant Brands International.
Ten of its restaurant chains generated $1 billion or more in U.S. system sales. An 11th, Baskin-Robbins, generated more than $1 billion internationally. It operates two of the 10 largest restaurant chains in Dunkin’ and the recently acquired Subway. It operates five of the 30 largest chains, including Sonic, Arby’s and Buffalo Wild Wings.
Roark is a major investor in the fastest-growing fast-food burger chain Culver’s. It owns the second and third largest sub sandwich chains in Subway and Jimmy John’s. It operates full-service brands (Buffalo Wild Wings, Jim ‘n Nick’s BBQ and Miller’s Ale House), quick-service brands (Subway, Arby’s, etc.), beverage brands (Dunkin’, Jamba, etc.), snack concepts (Auntie Anne’s, Cinnabon, etc.) and a lot of ice cream (Baskin-Robbins, Carvel). It also owns one of the industry’s most underappreciated growth stories in Nothing Bundt Cakes, though that underappreciated part is due, at least somewhat, to the fact that executives from said chain rarely talk to anybody about anything.
Of course, it also has its share of problem chains. Subway has been in decline in the U.S. for years and is in the process of a major management overhaul. Hardee’s and Carl’s Jr. are on their fourth turnaround plan in six years.
Roark’s buy-and-hold strategy is admirable, to say the least, in an era in which private-equity firms’ ultra-aggressiveness creates enormous headaches for brands down the line. Many private-equity firms overload companies with debt and sell off assets, then sell those brands before the debt or lack of assets becomes a problem. Or the firms push overly-aggressive growth so the brands can generate a return within their typical five-year window.
Roark’s long timeline enables it to take a longer-term view with its brands and discourages some of the worst private-equity actions. It’s hardly perfect, as the Hardee’s-Carl’s experience can attest. But it’s not exactly dumping real estate or pushing low-priced, all-you-can-eat shrimp to funnel more contracts to its own shrimp supplier.
At the same time, there remains a sense that Roark will need to exit something, at some point, particularly given the headaches the FTC created when analyzing the Subway deal. Inspire Brands seems to be the most obvious candidate, a company seemingly built toward a return to the public markets. GoTo Foods has periodically been rumored as an IPO candidate.
Dave’s Hot Chicken, assuming it continues its aggressive growth trajectory, could well be the next Wingstop, as Jennings reported. Perhaps Subway, either alone or paired with some of the other concepts, at least once its unit count and sales are stabilized. But who knows when that happens.
For now, though, Roark remains the biggest restaurant chain private-equity platform, one that has to be considered whenever a major restaurant chain heads to market.