News

Largest Burger King franchisee to pay $238M for Cambridge Franchise Holdings

February 20, 2019

The nation's largest Burger King franchisee, Carrols Restaurant Group, Inc., will acquire 166 Burger King and 55 Popeyes restaurants from Cambridge Franchise Holdings  LLC. The properties are located in 10 Southern states in the U.S., a news release said. 

"This is a transformational transaction for our company," Carrols Chair and CEO Dan Accordino. "It further strengthens our position in the Burger King system and provides us the opportunity to continue executing our Burger King acquisition and expansion strategy. 

"Cambridge also brings a strong, growing second brand in Popeyes to Carrols' portfolio, and they have demonstrated strong returns on new restaurant development in their geographies. We look forward to partnering with them as we work to improve returns for our stockholders through additional, diversified alternatives for future growth and effective capital allocation." 

The transaction was structured as a tax-free merger with Cambridge getting approximately 7.36 million shares of Carrols common stock or approximately 16.6 percent of Carrols' outstanding common shares at closing. Cambridge will also receive shares of 9 percent PIK Series C Convertible Preferred Stock, which can be converted into approximately 7.45 million shares of Carrols common stock at $13.50 per share.

According to the release, that is a 44 percent premium to the $9.35 closing share price on Feb. 19 but is also all subject to a stockholder vote on the company's 2019 annual meeting. Cambridge may also designate up to two director nominees, with two of its leaders joining the board of directors when the merger is complete. 

The $238 million transaction (based on Feb. 19 closing share price) values Cambridge at approximately 5  to 5.5 times pro forma restaurant-level EBITDA. On a fully-diluted, as-if converted basis Cambridge would hold approximately 24 percent equity interest in Carrol's, after conversion of the Cambridge and Burger King Corporation convertible preferred stocks to common stock.

Under Carrols' existing Burger King agreement, it holds assignment rights to BKC's right of first refusal and can expand in 20 states until it reaches 1,000 restaurants. Carrols has also entered into a new Area Development and Remodeling Agreement with Burger King upon closing of the Cambridge merger. That expands the assignment of Burger King's right of first refusal for the acquisition of up to 500 additional Burger King restaurants to include most of Arkansas, Louisiana, Mississippi, and Tennessee. 

Carrol's has also relinquished its right of first refusal in Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey, New York, and West Virginia, but will develop 200 new Burger King restaurants over the next six years and remodel or upgrade others over the same period.

Carrols said the merger serves as a springboard to grow within the Popeyes brand, as well, which includes the 55 locations of that brand that Cambridge brought to the table in Kentucky, Louisiana, Mississippi and Tennessee. Carrol's will assume Cambridge's existing Popeyes Development Agreement for an acquisition right of first refusal in Tennessee and Kentucky and the development of approximately 70 new Popeyes restaurants over the next six years.