RESTAURANT FINANCE MONITOR R - Solomon Partners

off the ground.”on that business by managing a store.And, they structure sale/leaseback transactions as a toolfor an operator to retire, pay down debt, said Lopez. “It isa great way to cash out.”“But we soon found out the investment to get into a Valvolinewas the same as Taco Bell, and Taco Bell’s returns were somuch better,” he said. They sold the Valvolines and insteadfocused on building up their taco business. Later, in 2015,he and his dad hired Rick Ormsby, currently managingdirector of investment banking firm Unbridled Capital tosell their eight locations.They also put their relationships to work when someone islooking for an acquisition. “Operators are often looking foradditional ways to expand,” he said. “Let’s say they wantto get in the taco business, we’ll marry that with anotherclient we have who might be selling.”They both like the restaurant industry because it is not asvulnerable to e-commerce as other retail sectors. And, it hasa large human element that brings them great satisfactionat the end of the day.“We get to affect businesses where people have poured theirlife into it,” said Lyons. “We get to help them transition theirbusiness to a partner or their children. We can support theyounger generation of operators. We can help them adopta growth strategy.“We are dealing with human beings who are makingimportant decisions in their lives,” he said. For moreinformation, contact Joe Lopez at jlopez@encorereis.com,or at 248-702-0728; or contact Evan Lyons at 248-702-0298or at elyons@encorereis.com.Franchisee Sells Units in Three Wendy’s MarketsWendy’s franchisee Bridgeman Foods has sold units inthree of its markets, totaling 109 locations. The restaurantswere located in Florida, purchased by QFRM Holdings;Kentucky, purchased by Heritage Partners Group; andTennessee, purchased by Wendy’s of Bowling Green.Investment banking firm The Cypress Group advisedBridgeman Foods on the divestitures.After the sale, “I thought, what do I want to do now?”said Rutherford. “About that same time, Bojangles’ wason a development path in our area, and I knew the marketwell. I built up that business to five stores, finally leavingthat in August.”His winding road of restaurant experience brought him to apoint where he finally had to move on, he said. “I had beenthinking about my career path for some time. It was a goodtime to get out for me personally. I had been keeping upwith Unbridled Capital, and I have known Rick personallyfor 10 or 15 years at least. He has been a friend who’s alwaysbeen interested in me—I saw a good opportunity with Rickwhen he asked me to join the team.”As COO, Rutherford will be overseeing all aspects of thebusiness, “a very difficult job,” says Ormsby. Ormsby felthe needed to add that COO position if he wanted to growthe business and do what Ormsby himself does best: “Gosee clients and drive the business.”“And I couldn’t just have a deal guy or a finance guy dothis. I knew this role would have to manage the entirety ofthe business. It’s everything from finance and marketingto administration. It’s difficult to find someone with thatbroad of a skill set,” he said.All three transactions “turned out really well,” said Bill Pabst,principal with Cypress and the advisor on the deals. “Theywere a fair price, and the buyers got great markets. And,they were highly qualified buyers, which Wendy’s likes.”Ormsby had an ah-ha moment: “A really successfulfranchisee is the perfect kind of person to handle the broadresponsibilities of managing a business,” he said. “Theybalance the checkbook, develop new stores, lead HR andhire and fire, they handle customer complaints and dealwith Pepsi and Dr. Pepper. They are good business people.Jay had all this. I knew he could handle these functions.”Pabst said he has done business with the Bridgeman familyfor years, and “it was a pleasure to work on this with them.”Bridgeman Foods continues to operate more than 150Wendy’s in Wisconsin, St. Louis, Kentucky, Virginia andGeorgia.Six weeks into his new job as Chief Operating Officerfor Unbridled, Rutherford says he is still learning, but isexcited about what he brings to the table. “I can understandthe franchisee’s way of thinking, and their processes,”Rutherford said.For more information, contact Bill Pabst at (303) 680-4141,ext. 104, or at wpabst@cypressgroup.biz.And he has sold restaurants, which can be nerve wracking,he reports. “I understand their feelings 150 percent. This istheir lifework, and maybe they are nervous, because theydon’t know what the next chapter will look like. I can talkthrough that with them.”Former Franchisee Joins Unbridled TeamAccording to Jay Rutherford, he’s always found himselfin the restaurant business. “I started in the family businessright out of college,” he said. His father, Jay Rutherford, Sr.operated a number of Long John Silvers for 17 years beforebuying into the Taco Bell system.Rutherford senior also opened up Valvoline Instant OilChange shops, where the younger Rutherford cut his teethFor Ormsby, it signals to their franchise clients that “webelieve heart and soul in franchisees, because that’s the typeof person we’ve brought into the company.”For more information, contact Jay Rutherford at 502-2526427 or by email at jay@unbridledcapital.com.Page 3

FINANCE SOURCESBrookwood’s Amy Forrestal Helps Clients Navigate M&A MarketThe mergers & acquisition market for restaurant franchiseesand multi-unit restaurant brands has changed dramaticallyover the past three decades, and Brookwood Associates’Amy Forrestal has had a front row seat to that evolution.Originally, the market for franchisee sales was limited. Themain buyer on franchise resales was often the franchisor.Franchisors have the right of first refusal, and it wascommon for them to buy the franchisee business whenoperators wanted or needed to sell. That started changingin the early 1990s.“Wall Street started telling franchisors that wasn’t a greatuse of their capital, and so we saw an opportunity to applythe M&A process to franchise restaurants,” says Forrestal.The buyer pool began expanding to other franchisees thatwanted to grow or add another brand. Private equity investorsstarted to get involved in franchising in the late 1990s.“Now there is a plethora of investors with all kinds of peoplewanting to own franchisees,” says Forrestal. Buyer groupsinclude private equity investors, family offices, entrepreneursand other strategic buyers. “So, the investor base hasbroadened tremendously, which has driven multiples andhas been good for the industry overall,” she says. Investorslike restaurants because they are generally a cash generatingbusiness with a model that is easy to replicate, she adds.Forrestal started out her career nearly 30 years ago workingin the M&A group at what is now Banc of America MerrillLynch. She completed her first restaurant franchise M&Atransaction in 1992 with a Taco Bell deal and continued towork with major restaurant franchise brands that includethe likes of Wendy’s, Pizza Hut, Applebee’s and others.Currently, Forrestal is a managing director at BrookwoodAssociates, an investment banking firm that focuses onmiddle-market companies across a broad range of industrieswith transactions and companies up to 250 million invalue. She joined the firm in 2002 to start the firm’srestaurant M&A group. She provides M&A acquisitionservices for restaurant clients on the buy and sell side, aswell as advising firms on recapitalization strategies and withprivate capital raising. Forrestal was recognized by Mergersand Acquisition magazine in 2015 and 2016 as one of 35top women in Mid-Market M&A.Despite the larger pool of buyers that exist in the M&Amarket today, franchise restaurant businesses are seeing awide range of multiples depending on the brand, financialsand the specific situation. Sellers also can take some simplesteps to get the highest and best value out of a sale. Forexample, Forrestal advises franchisees to get their costs inline and P&Ls in the best possible shape. Another tip isto make sure that real estate leases have options to renew.Operators should address term on a short-term lease fortheir best stores prior to a sale process, because that couldhurt the value of the business if they lose a lease or termsincrease dramatically, she notes. Operators need to look atthe condition of units to see if they need any improvementsor upgrades. “Importantly, you also need to understand howmuch growth is available within their market,” she adds.M&A has been a great fit for Forrestal. She loves the financeand analysis part of working on transactions. She earneda Bachelor of Arts degree cum laude with a double majorin mathematics and economics from Duke University in1987. “What I really like about this industry is the people,”she adds. “They are in the hospitality industry, and it’s funto be around people who enjoy what they do and are in anindustry that they enjoy.” Contact Amy at 404-419-1570or af@brookwoodassociates.com.National Franchise Sales Advises on Sale of FiveGuys and The Counter LocationsNational Franchise Sales (NFS) provided advisory onthe sale of: A Five Guys development agreement to BC Restaurants,Inc., who was already an existing multi-unit, multi-stateWhich Wich franchisee. Prior to opening the first Five Guyslocation, the neighboring Five Guys franchisee in the SanFrancisco Bay area decided to exit the Five Guys system.NFS assisted the seller and the buyer on the sale of fiveexisting Five Guys restaurants in addition to a developmentterritory of nine additional units. NFS handled the leaseassignment process with five different landlords, assistedin procurement of new financing and worked closely withthe franchisor to move the process along as smoothly andswiftly as possible. Two The Counter restaurants in Los Angeles, also helpingobtain financing for the buyer with Live Oak Bank.According to NFS, the other significant challenge in thistransaction was in effectuating the lease assignments withless-than-cooperative landlords to satisfy the timing requiredfor the liquor license transfers.National Franchise Sales provides advisory on the sale andbrokerage of multi-unit restaurants nationally. The firm hasfacilitated numerous sales, from single-unit transactions tomulti-unit sales of more than 50 units. For more information,contact Jerry Thissen, president, at (949) 428-0481 or atjt@nationalfranchisesales.com.Auspex Capital Completes Transactions forWendy’s FranchiseesRestaurant investment banking firm Auspex Capital ledthe following transactions for Wendy’s operators:Debt Placement: Franchisee Wenspok Companies,based in Spokane, Wash. recently acquired 12 Wendy’s inthe Lincoln, Neb. DMA. With this acquisition, Wenspoknow operates restaurants in nine Western and Midwesternstates with additional affiliate operations in Canada. Thefinancing was provided by Signature Bank.Sell-Side M&A Advisory: Starboard Group, a CoralSprings, Fla.-based franchisee owned by Andrew Levy,has sold 12 Wendy’s restaurants in Pennsylvania and two inNew Jersey to Yellow Cab Holdings Group. Levy, throughvarious affiliated entities, continues to own and operate 100Wendy’s restaurants in Florida, Virginia, Alabama, Illinois,Wisconsin and Missouri.Page 4

Buy-Side M&A Advisory: NutmegWen, LLC, an affiliateof CKA Management which is owned by QSR veterans JoeCugine, Keith Kas and John Antonaccio, has acquiredone high-volume Wendy’s restaurant in Connecticut from afranchisee who is exiting that market. CKA is a HasbrouckHeights, NJ-based restaurant operating company which nowowns and operates 68 Wendy’s and 12 Taco Bell restaurantsin New York, New Jersey, Connecticut and Pennsylvania.For more information about Auspex Capital, call ChrisKelleher, managing director, at 562-424-2455 or emailhim at ckelleher@auspexcapital.com.Pizza Hut Franchisee Sells 32 LocationsCFL Pizza LLC recently sold 32 Pizza Huts in Ohio,Kentucky and Indiana. The restaurants were sold to newfranchisee Chaac Pizza Midwest, LLC, led by LuisIbarguengoytia and Gauge Capital. CFL Pizza’s CEO andlong-time franchisee, Andy Rosen will continue to operatePizza Hut, Taco Bell and KFC restaurants throughout theSouthern U.S.Unbridled Capital advised CFL Pizza on the sale. Over thepast 36 months, Unbridled has assisted Pizza Hut franchiseessell 500 restaurants through 11 transactions. For moreinformation on Unbridled Capital, contact Rick Ormsby at(502) 252-6422, or by email at rick@unbridledcapital.com.Barrow and Burks Join Atlantic Capital BankAtlantic Capital Bank has hired two restaurant financeexecutives as they expand their restaurant group: ClintonBarrow and Jenise Burks.Barrow joins the bank as SVP with more than 25 yearsof restaurant finance experience, over eight of those yearsmost recently with First Franchise Capital Corporation. Hewill be working on relationship management, says Smith,“bringing in existing relationships and developing new ones”with restaurant operators.“When we interviewed him I knew it would be a perfect fit,”said Mike Smith, head of the restauant group at AtlanticCapital. “His knowledge—he knows everyone and what’shappening in the market. That’s a huge value for our group.Our group here is barely five years old, so adding his franchisebanking experience is a big win for us.”Barrow got into restaurant finance early in his career, and “Ifell in love with this sector,” he said. “Franchisees are greatentrepreneurs. You can see the result of their hard work intheir P&Ls. They have to stay focused on a daily and weeklybasis and that’s who I want to work with.”He’s excited to join the bank because “we really get behindthe due diligence. That allows us to get a clear view of whatis going on and have more transparency with the operator.”Burks has spent the past 10 years in underwriting, mostrecently with CIT Bank’s franchise finance group. She joinsAtlantic Capital as vice president.“We were intrigued by Jenise’s desire to get into therelationship management side of things, especially with herexpertise as an underwriter,” said Smith.“I’ll have a dual role,” said Burks. “To create new relationshipsbut also support Mike, David (Sims) and Clinton. I loveunderwriting, but I am also very good with clients. I canuse the skills I’ve cultivated over the years.”“It plays well to our culture here,” said Smith. “We have tohave strong underwriting: When we say we can do a deal,we can do the deal. Jenise has already helped us in vettingnew franchise programs we are bringing in.”Atlantic Capital Bank has funded franchisees in 23 differentbrands since the group’s inception. They work with smallerfranchisees, whose average business is 10 to 20 units, andtheir average deal is 3 million. “But we have done largerdeals, too,” said Smith. “We’ll actually partner up with largerbanks who need participation help in franchise systemswe’re in—plus or minus 10 million. We aren’t a threat toother banks leading those transactions, because we’re notcompeting with them in that space.” For more information,contact Mike Smith at mike.smith@atlcapbank.com, or at(404) 460-4426.Former FastSigns President Brokers FranchiseBusinesses“I was at FastSigns for 21 years, the last four as president,”said Larry Lane, who has owned VR Business Brokers forthe last 10 years. “As a franchisor, we were fairly active inhelping franchisees in the resale process. I felt like we had anethical responsibility to help, but it was for the bettermentof the network, too.”Since he has owned a VR for a decade, he’s seen franchisorswho are active in helping resell franchisee businesses, whileothers “consider it nothing but a problem, and are a completestumbling block throughout the sale process.”He has the VR office in Dallas, but the VR Business Brokersnetwork is nationwide, each with individual owners. Lanemainly helps owners in Texas, but will work with franchisorsnationwide when he is involved with other franchisees intheir system. He also sells independent businesses.His goal first and foremost is to educate the seller on whata reasonable price for their business is. “If you are two orthree years out from selling,” he explained, “you need toprepare to build more value in the business.”And franchisors usually don’t provide that type of education.“They are mainly focused on selling new units, and not onthe sale of existing franchisee units and how to value them.Some do have the desire to educate their franchisees, butthey don’t know how.”In addition to working directly with individual franchiseeson their resale, he also wants is grow more relationships withfranchisors that want to put a resale program in place. “Weare not wanting to just place an ad and turn the lead over tothe franchisor,” said Lane. “We want to qualify the buyer,educate them on the brand, get them interested. Then it isan easier sell for the franchisor and franchisee.”He says they are a referral source for a resale, “but we aredoing it with a much more focused effort to really promotethat single opportunity and to get that buyer to the table.”For more information on VR Business Brokers, contactLarry Lane at 214-733-8282, or at llane@vrdallas.com.Page 5

FINANCE INSIDERCowen analyst Andrew Charles predicts Chipotle’s storelevel AUVs will get back to the brand’s previous peak of 2.5million by 2021 and will reach nearly 3 million per storein 2024. Last year, Chipotle’s average store volume was 2million compared to 1.94 million in 2017. Charles cites thebrand’s growing mix of digital sales for pick-up and thirdparty delivery as reasons for the increase. Chipotle’s stock,by the way, trades at a forward multiple of 26x EBITDAbased on 2020 estimates.The 15-unit, healthy bowl concept called Bolay was foundedby Chris Gannon three years ago. His co-founder is hisfather, Tim Gannon, co-founder of Outback Steakhouse.The Gannons took a page from the early Outback investmentplaybook by selling equity interests in the first 10 stores,but not selling equity in the brand. Gannon junior told aRestaurant Finance & Development Conference audiencethat his father “fattened everybody up, and we are skinnyingeverybody down.” Bolay plans to grow with debt and cashflow in the near term.Jack in the Box will have an entirely new management teamnext year. Departing soon are long-time Jack employeesLenny Comma, CEO; Carol Diraiomo, investor relations;Phil Rudolph, chief legal; Mark Blankenship, EVPstrategy; and Paul Melancon, VP controller.Asking rents for ground-floor retail spaces in Manhattandecreased in 11 of the 17 corridors analyzed by the RealEstate Board of New York, and seven of the 11 statisticalsubmarkets tracked by Cushman & Wakefield. Landlordsare dealing with the increased supply of empty spaces byreducing rents and offering more tenant improvementdollars. Still, asking rents in New York would make mostUSA food operators cringe. A broker told the Monitor thatSweetgreen’s new 3.0 “store of the future,” a two-levellocation at Park Avenue and 32nd street, has rents startingat 500,000 per year, increasing to 600,000 by year seven.Wendy’s founder Dave Thomas’s wife, Lorraine, passedaway on November 24. Mrs. Thomas was involved in anumber of philanthropic charities including The DaveThomas Foundation for Adoption, which has been activelysupported by Wendy’s and the company’s franchisees sinceits founding in 1992. The Thomas family remains a largemulti-unit franchisee of Wendy’s in Ohio.Wonder why there are so many private equity and familyoffices getting into the restaurant business? According toa report by EY, there are now at least 10,000 single familyoffices in existence globally and at least half of these were setup in the last 15 years. The US private equity sector includesmore than 3,800 private equity firms and 15,000 PE-backedcompanies in 2018. Large franchise brands are interested inthese groups as a means to achieve market optimization (i.e.bring in a well-heeled franchisees that can he

One long-time restaurant investor and analyst doesn't like the risk-reward in emerging brands, either. Former Montgomery Securities restaurant analyst John Weiss told attendees when restaurant companies tout cash-on-cash returns of 30%, they often are excluding pre-opening costs, depreciation, and incremental G&A to handle the growth.