A whopper of an acquisition: Burger King owner purchases Popeyes

The appetite for M&A in the fast food industry shows no sign of waning following news that Popeyes Louisiana Kitchen Inc. has been acquired by the owner of Burger King and Tim Hortons.

Restaurant Brands International Inc. paid a lip smacking $1.8 billion to acquire the New Orleans-based quick-service chicken concept chain, which was originally established in Louisiana in 1972 and specialises in regional cuisine. It operates primarily in the southern states of the USA, with 2,600 outlets, but it also has over 400 international franchises in 25 countries around the world.

Restaurant Brands was formed in 2014 after the merger of Burger King and Canadian coffee and donut outlet Tim Hortons, and the Popeyes deal is the first that the company has made since.

Part of the attraction of Popeyes was that it is run on a franchise basis, similar to both Tim Hortons and Burger King – a business model which Restaurant Brands finds both successful and profitable due to its generation of robust cash flow and high margins. Daniel Schwartz, CEO of Restaurant Brands, said the acquisition paved the way for further expansion and that it was, “an opportunity to massively accelerate the growth [of the brand].” Future potential targets are rumoured to be Subway, Pollo Loco and Dairy Queen which also operate on a franchise basis.

The tasty deal was financed by Brazilian private equity firm 3G Capital, which owns over 42 per cent of Restaurant Brands, and Warren Buffet’s Berkshire Hathaway, who previously combined to structure the Kraft/Heinz merger. 3G Capital have a reputation for growing revenue through driving down capital expenditure, and is renowned for its ambitious expansion plans.

The announcement has been good news for shareholders in both Popeyes and Restaurant Brands, with share prices rising 19 and 7 per cent respectively. Popeyes, amid heavy competition in the ‘quick-service restaurant’ sector from household name brands such as KFC, Wingstop, Bojangles and Chick-fil-A, saw sales rise by 1.7 per cent during 2016. Mr Schwartz said the company had achieved its long-term success through its high levels of guest satisfaction and franchise profitability which its new owners intended to continue. He would not comment on whether any locations would be closed or jobs cut, but given Restaurant Brands’ owners’ penchant for a growth strategy based on aggressive cost cutting, this cannot be ruled out.

Dining deals seem to be flavour of the month at the moment, with Restaurant Brands’ acquisition of Popeyes continuing a trend which has seen a $4.71 billion spend in this sector so far this year. Last year’s record-breaking Yum China spin-off, worth $9.5 billion, headed up the third-biggest year for dining M&A worth a total of $29.7 billion.

Stay tuned to our blog for industry M&A analysis and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.

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