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What the Buffalo Wild Wings deal means for Roark

On every rule Roark Capital Group has followed in acquiring nearly 20 restaurant brands, there’s been an asterisk—maybe none more pronounced than the one slapped on the pending deal for Buffalo Wild Wings.

From its first restaurant transaction, the $48 million purchase of a controlling stake in the Carvel regional ice cream chain in 2001, the plan was to buy wheezing old brands, blow off the dust, swap in some new parts and freshen the look. And that’s exactly what it did in the subsequent acquisitions of graybeards like Schlotzky’s, Carl’s Jr., Hardee’s and Arby’s.

But along the way, it went out and bought a chunk of Naf Naf Grill, a 13-unit upstart in the emerging Mediterranean fast-casual market. So much for comeback projects.

Still, it was sticking with the limited-service sector, right?

Then came the purchase of Miller’s Ale House, Jim ‘N Nick’s Bar-B-Q and, pending completion of the $2.9 billion deal announced today, Buffalo Wild Wings, all offering table service.

The deal will expand Roark’s presence in casual dining, an industry segment rife with acquisition candidates and potentially attractive prices, since few private-equity firms choose to play there.

It’s also the Atlanta deal hunter’s first safari into the public markets for a restaurant acquisition. Virtually every other holding has been acquired from a brand’s founder or a private company, usually another PE firm. The willingness to mount a stock bid could expand Roark’s prospects for subsequent purchases. An investor in Bloomin' Brands has already revealed plans to discuss with management the possibility of selling all or part of the casual-dining operation, whose brands include Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill and Fleming's.

The buyout does reinforce certain of Roark’s cardinal principles. Unlike most PE companies active in the restaurant field, the firm doesn’t follow a fix-and-flip approach. With the exception of Wingstop, which was sold to the public, each of its restaurant acquisitions has been retained, operated either as a freestanding business, a la Arby’s, or as part of Focus Brands, Roark’s management arm.

In the case of BWW, a mini holding company is being formed within Roark’s ranks. Arby’s Restaurant Group will now become a two-chain operation, with CEO Paul Brown overseeing both Arby’s, a classic quick-service player, and BWW, a sizable full-service presence.

The two might compete in different sectors, but they share some similarities. Both are exceptions to the asset light approach that many franchisors have pursued in deploying capital. At a time when brands like McDonald’s, Jack in the Box and Applebee’s are aiming only to franchise restaurants, not operate them, both Arby’s and BWW have sizable rosters of corporate stores. By design, about a third of the 3,300-unit Arby’s system are company-run, and about half of BWW’s 1,240 restaurants are owned and managed by the franchisor.

Neither has been aggressively developing outside of the United States, a point that fueled Marcato’s dissatisfaction with BWW CEO Sally Smith. None of Roark’s 17 restaurant brands is known for having a big presence overseas.

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