Restaurant Brands International (RBI), the parent company of Burger King, announced Tuesday that it will fully acquire Carrols Restaurant Group for $9.55 per share in an all-cash transaction valued at approximately $1 billion. The deal will give RBI ownership of over 1,000 Burger King and Popeyes restaurants, making it one of the largest restaurant operators in North America.
Key Details of the Acquisition
- RBI will pay $9.55 per share for each outstanding common share of Carrols, representing a premium of approximately 13% to Carrols’ closing share price on January 13th
- The deal is valued at around $1 billion and will be funded through RBI’s cash on hand and existing revolving credit facility
- Carrols is the largest Burger King franchisee globally with over 1,000 restaurants in 23 states. It also franchises around 65 Popeyes restaurants
- Following the close of the deal, RBI will own and operate over 3,000 Burger King restaurants in the U.S.
- The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the first quarter of 2024
“We are very excited to fully welcome Carrols’ experienced restaurant teams into the RBI family,” said Jose Cil, CEO of RBI. “This transaction reinforces our strong commitment to developing the BURGER KING® and Popeyes® brands in the United States.”
Rationale Behind the Deal
Industry experts note that RBI’s acquisition of Carrols will allow it to accelerate remodels and upgrades of the acquired restaurants. RBI has been actively revamping Burger Kings with a sleeker, more modern design as part of its “Restaurant Brands for Tomorrow” strategic growth plan.
Owning the restaurants outright instead of franchising them is expected to speed up the pace of remodels. RBI can also leverage its scale, supply chain infrastructure and marketing expertise to drive sales growth and operational improvements across the acquired locations.
“We believe the acquisition will enable faster paced remodelling of the restaurants, which should lead to higher sales and margin dollars,” said analyst Lauren Silberman of Credit Suisse.
Impact on Burger King’s U.S. Presence
With over 1,000 additional Burger King outlets under its ownership, the Carrols deal significantly expands RBI’s footprint in the U.S. Burger King market.
Pre-acquisition, RBI owned and operated around 2,000 Burger Kings in America. That number will now rise to roughly 3,000 – making RBI one of the country’s largest restaurant operators alongside the likes of McDonald’s and Yum Brands.
The deal is also expected to reinforce Burger King’s position as the second largest burger chain in the U.S. by location count behind McDonald’s. While declining sales have seen Burger King lose market share to rivals like Wendy’s in recent years, analysts say RBI now has greater control and visibility to stabilize and reinvigorate Burger King domestically.
“This increases Restaurant Brands’ ownership and control in one of its most important markets and fits squarely within the priorities laid out at its December 2022 investor day,” noted KeyBanc analyst Eric Gonzalez.
Financial Impact and Shareholder Returns
RBI says it expects the transaction to drive approximately $100 million in run-rate EBITDA accretion by 2025, along with $30 million in annual G&A cost savings realised through synergies in marketing, restaurant technology and support functions.
The company anticipates the deal will achieve a cash-on-cash return above 20% in 2024 and deliver ROIC of over 25% within 3 to 5 years as transformed restaurants drive increased sales.
“We expect the deal to pay off over the long term thanks to accelerated remodelling of stores and better-than-franchised unit economics,” commented UBS analyst Dennis Geiger.
While RBI takes on substantially more debt to fund the acquisition in the near term, the company expects to reduce leverage to under 4x within 24 months post closing. Management also reaffirmed RBI’s commitment to its dividend, noting ample free cash flow generation to support ongoing dividend increases.
Shares in Carrols surged over 13% to $9.53 on news of the buyout, nearing the $9.55 per share offer price. RBI’s stock closed 3.6% higher after initially declining on concerns over heightened leverage levels from the debt-funded transaction.
Outlook Following the Acquisition
- The transaction is expected to close late in the first quarter or early second quarter of 2024, subject to approval from Carrols shareholders, customary regulatory approvals and other customary closing conditions
- Once completed, RBI will immediately look to accelerate renovations and enhancements at acquired restaurants to boost sales and profits
- There is likely to be some rationalization of underperforming or duplicative restaurant locations over time
- RBI management will move quickly to optimize operations, supply chain logistics, labour deployment and other factors to improve speed of service, quality and consistency
- Strong performance from acquired locations will be key to RBI achieving targeted returns and repaying debt taken on to finance the $1 billion deal within two years
The acquisition signals RBI’s strong commitment to reinforcing Burger King’s standing in its home market against rivals like McDonald’s and Wendy’s. With full control over 1,000 additional Burger King outlets, RBI is betting it can catalyze a sales turnaround through tech upgrades, remodels and operational changes aimed at boosting guest experience.
Franchisees like Carrols add value through their local operational expertise. But owning restaurants enables quicker decision making and financial alignment around making transformative investments that may pay off over the longer term.
While assuming more financial risk and leverage, RBI’s appetite for buying rather than franchising more Burger Kings reflects its bullishness on reigniting growth for the brand in America through technology, innovation and revitalizing restaurant experience.
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