Sold: Arby’s acquired by Roark Capital

June 12, 2011

Wendy's/Arby's Group has announced an agreement to sell the majority of Arby's Restaurant Group Inc. shares to a buyer formed by Roark Capital Group. The transaction value is estimated at $430 million.

The move comes nearly five months after WAG announced it was exploring strategic alternatives for Arby's.

Wendy's and Arby's have been under the same umbrella since 2008, when Triarc Cos. merged with Wendy's International. Both chains experienced struggling sales after the merger, with Arby's dropping upwards of 11 percent.

In working toward a rebounding effort, Arby's initiated a turnaround plan in the spring of 2010 that included a $1 value menu expansion, remodeling efforts and a product innovation program. The chain also recently launched its "Good Mood Food" campaign to stop the spiral and has shown signs of improvement, including its 3.1 percent increase in same-store sales in Q4 '10.

Wendy's looks to 'exciting' growth

Atlanta-based WAG will retain 18.5 percent ownership of Arby's, which includes more than 3,600 restaurants in the U.S.

The estimated $430 million deal includes Arby's approximately $190 million debt being assumed, the value of the minority stake that Wendy's keeps and an $80 million income tax benefit for Wendy's.

"This transaction provides substantial value to our stockholders, as it is expected to be accretive to earnings, deleverage the balance sheet and allow us to devote our full attention and resources on the exciting growth opportunities we have at Wendy's. These opportunities include revitalization of our core menu, expanding breakfast, modernizing our facilities, building new restaurants in the United States and pursuing global expansion," said Roland Smith, president and CEO of WAG.

Smith called 2011 a transition year, one that lays the groundwork for Wendy's to deliver between 10 and 15 percent average annual EBITDA growth in 2012 and beyond.

"We view Wendy's as one of the most attractive growth stories in the quick-service restaurant industry," he said.

The Arby's/Roark deal is expected to close in the third quarter. WAG expects that Arby's will be reported as a discontinued operation in the company's second quarter 2011 financial results.

At closing, Roark will invest $180 million and own a $180 million non-dividend paying preferred stock interest and an 81.5 percent common stock interest. Roark's investment will be used to pay the cash portion of the purchase price, buyer transaction expenses and to provide liquidity and growth capital for Arby's.

In addition, Roark will commit to invest into Arby's through 2013 to provide liquidity and growth capital and would receive preferred stock in return.

"This is an exciting day for Roark as well as Arby's. Arby's has more than 47 years of offering unique, high quality and better-tasting alternatives to traditional fast food," said Neal Aronson, managing partner of Roark Capital Group. "We look forward to working with Arby's President Hala Moddelmog and the dedicated employees and franchisees to help this great brand achieve its full potential."

Roark Capital Group is an Atlanta-based private equity firm that focuses on investing in franchise, brand management and restaurant companies. Included in its portfolio is Auntie Anne's, Carvel Ice Cream, Cinnabon, Corner Bakery, Il Fornaio, McAlister's Deli, Moe's Southwest Grill, Schlotzsky's, Wingstop and the franchisor of Seattle's Best Coffee on certain military bases and in certain international markets.

Topics: Burger/Steak/BBQ , Business Strategy and Profitability , Financing and capital improvements , Franchising & Growth , Marketing / Branding / Promotion , Operations Management , Sandwich

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