NPC International Inc., the largest franchise operator for Pizza Hut, said Thursday it will expand its portfolio to include quick-service burgers with the acquisition of 24 Wendy’s units.
Overland Park, Kan.-based NPC said it had agreed to by 22 Wendy’s restaurants in the Kansas City area for $9.3 million plus franchise fees and working capital, in addition to two units that are under development in the market. The deal is expected to close in July.
“We’ve been evaluating alternative investment opportunities for some time that match well with our core competencies, our values and our culture,” said Jim Schwartz, chairman and chief executive of NPC, in a conference call with analysts. “As we evaluated alternatives, the Wendy’s brand continually rose to the top our list and became an easy choice for a secondary growth platform.”
NPC is acquiring the Wendy’s locations through a new subsidiary, NPC Quality Burgers Inc. The company said the 22 units to be acquired by NPC generated $32.7 million in net product sales during the 52 weeks ended Dec. 30.
As part of the agreement, NPC plans to reimage some of the acquired restaurants under Wendy’s new “Image Activation” format.
Troy Cook, NPC International’s chief financial officer, told analysts that the company plans to “image-activate” at least 12 of the 22 units. “There could be more than that,” he said.
NPC said it is funding the purchase entirely with available cash reserves. Of the 22 locations, 14 are fee-owned, which will be leased from Wendy’s, the company said.
Schwartz said NPC looks forward to expanding its position in the Wendy’s brand. “We believe there will be ample opportunity to grow through acquisition, much like we’ve done in the Pizza Hut system,” Schwartz said, as well as development within the current territory.
Cook said NPC would look at other Wendy’s territories as they become available. For Pizza Hut development, Cook said, “We like the Midwest. We like the Southeast. We like the Mountain West. We’re not big fans of operating in California. We’re not big fans of operating in the Northeast. We will probably continue to follow a very similar approach as it relates to Wendy’s.”
Schwartz added that the company does not plan to “cross-pollinate” the two brands’ staffs, except in shared-service support in the back office.
Wendy’s president and chief executive Emil Brolick said in a statement that the deal is “mutually beneficial for NPC and Wendy’s.”
“As part of our restaurant ownership optimization initiative, we are focused on recruiting successful, well-capitalized franchisees with strong operating credentials that are committed to our Image Activation reimaging program,” Brolick said.
Franchisee organizations are increasingly looking to expand their portfolios, according to the 2012 Chain Restaurant Merger & Acquisition Census from investment banking firm J.H. Chapman Group LLC.
Of 96 transactions included in Chapman’s census for 2012, franchise unit acquisitions made up more than one-third of the deals.
NPC International, which is a subsidiary of Stamford, Conn.-based private-equity Olympus Partners, operates about 1,250 restaurants in 28 states.
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