Roark Capital Buys Arby's, Corner Bakery and Il Fornaio

In a potential sign of things to come, Atlanta-based private equity firm Roark Capital has reached a pair of agreements that allow it to purchase three restaurant chains from their respective owners including Arby's, Corner Bakery Café and Il Fornaio Restaurants and Bakeries.

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"It is a buyer's market and it is a good time for equity firms who want to get involved, depending on their perspective of the economy," said Darren Tristano, executive vice president for Technomic, a Chicago-based foodservice market research firm. I think we have been seeing movement and we will likely see more movement in the market. There are a lot of chain organizations that are under-capitalized and struggling or looking to expand and are under-capitalized. If you are a good concept, like Corner Bakery, and you are not growing as rapidly as your competitors, you can add a little more money and invest in your business."

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The timing of the deals appear to be coincidental. "When you take a look at the two deals, they are very different," Tristano said. "On the fast-casual side, Corner Bakery represents a very high-end opportunity. When you look at Arby's, it is more of an opportunity to right the ship. You have a brand that has a storied history but has under-performed quite a bite here in recent years. So both are pretty big but they are being done for different reasons."

Roark's deal to purchase Arby's has an estimated value of $430 million. As part of the agreement, Wendy's/Arby's Group will retain an 18.5 percent ownership interest in the quick-service chain. With more than 3,600 units system wide, Arby's is the 16th largest restaurant chain overall and it ranks second in the limited service, sandwich category, according to Technomic's Top 500 Chains study. In 2008, Triarc, then Arby's parent company, merged with Wendy's.

"With mergers like that, there is a lot of opportunities to cut costs and share resources but it is not as easy to get these things done. So it can take two to three years to start realizing the benefits of these efficiencies. And after two years you probably have to sit back and take a look at whether it is working," Tristano said.

So is the time right to take such a big bite into the quick-service arena? "It is a big bite," Tristano said. "The price point is right for the economic climate and, depending on the concept, there could be strong opportunities to turn these concepts around."

Execution of this deal paves the way for Wendy's/Arby's group to devote its full attention and resources to Wendy's in the form of revitalization of the core menu, modernizing facilities, building new restaurants in the United States and pursuing global expansion, according to a company release.

In contrast, Dallas-based Corner Bakery, the 126th largest restaurant chain overall, is number four in the bakery café segment, trailing Panera Bread, Einstein Brothers Bagels and Au Bon Pain, according to Technomic. "Corner Bakery grew by three units last year. That is good when you consider a lot of chains declined or were flat," said Tristano, who points out that segment leader Panera Bread has in excess of 1,300 locations. "That's a big difference. And these category leaders seem to be building such strong momentum and growth that they are making these other brands struggle to remain relevant, particularly as brand loyalty builds among category leaders."

An upscale Italian concept, Il Forniao owns and operates 22 full-service restaurants in California and across the United States. Il Forniao also produces a variety of handmade breads, pastries and other baked goods for sale in its own bakery cafes and to grocers and other foodservice customers. Both concepts were owned by Il Fornaio America Corporation. As a result of this deal, Corner Bakery plans to accelerate its pursuit of new franchisees.

Roark has invested in franchise businesses that operate in 50 states and 43 countries. In addition to Arby's, Corner Bakery Cafe and Il Fornaio, Roark's other restaurant investments include FOCUS Brands, parent company of Carvel Ice Cream, Cinnabon, Schlotzsky's, Moe's Southwest Grill, Auntie Anne's Pretzel's and the Franchisor of Seattle's Best Coffee on certain military bases and in certain international markets, as well as McAlister's Deli and Wingstop, which are not affiliated with FOCUS Brands. Other franchise and brand management companies owned by Roark include Batteries Plus, Pet Valu, Bosley's Pets, FastSigns, Money Mailer, and Atkins Nutritionals.

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