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This deal might go down as one of the worst equity deals of all time.
In 2006, Quiznos had been a surging sandwich chain with about 5,000 restaurants in the U.S. The chain was signing franchisees in droves and was considered a major potential rival to Subway.
That year, the chain sold a 49-percent stake in the company in a leveraged buyout that, along with a subsequent debt refinancing two years later left Quiznos with $875 million in debt.
Yet even then, franchisees had been complaining about high food costs charged by Quiznos’ company-owned food supplier. Operators closed restaurants in droves as sales kept weakening. Debt restructurings, bankruptcies, ownership changes and CEO moves could not fix the problem.
By the end of 2015 the company had less than 700 locations. Restaurant consultant John Gordon estimated that franchisees who closed their units and the chain’s original bondholders lost an estimated $2.7 billion.
In 2006, Buffets Inc. agreed to buy Ryan’s Restaurant Group in a deal worth nearly $900 million that created a nationwide buffet behemoth, with nearly 700 restaurants in several brands.
It has less than that now.
The combined company had a ton of debt, more than $800 million. And the deal came just as consumers started abandoning dine-in concepts for quick-service restaurants and up-and-coming fast-casual restaurants. By 2008, just two years later, Buffets Inc. was in bankruptcy.
That would be the first of three bankruptcies for the company, the latest of which came in March of last year — just months after the company was sold to Food Management Partners. After numerous closures, that buffet behemoth now has just about 150 locations.
Buy cheap. That’s what Ignite Restaurant Group thought it was doing in 2013 when the owner of Joe’s Crab Shack paid $55 million for Macaroni Grill, a once thriving casual dining brand that was pulling in $385 million in revenue.
Ignite then spent big working to improve Macaroni Grill’s operations and marketing to lure customers back to the chain. Yet the chain’s sales continued to fall and the company was bleeding cash. Ignite tried converting locations, but that plan didn’t work, either.
By 2015, Ignite gave up. Less than two years after making the purchase, Ignite sold Mac Grill for the tidy sum of $8 million.
By the way, that $8 million was a fraction of the chain’s $164 million value in 2008, when Golden Gate originally agreed to pay $131.5 million for 80 percent of the chain.
“Quite frankly, I think we were a bit arrogant,” Ignite’s former CEO, Ray Blanchette, said in 2013.
Culture matters. Just ask Mimi’s Café.
In 2004, Bob Evans Farms Inc. paid $182 million in cash and assumed debt for Mimi’s Café. At the time, Mimi’s was a hot, casual dining concept that was about to go public. Bob Evans bought the chain before it could take that step.
But Bob Evans could do little with the chain once it got ahold of it. Same-store sales began falling at Mimi’s in 2005 and then continued. The chain grew to 145 locations, but it also lost money. Company insiders complained that Mimi’s didn’t fit within the Bob Evans culture.
By 2013, Bob Evans sold the company. LeDuff America agreed to pay $50 million for the chain, but only $20 million in cash. The rest came in the form of a $30 million promissory note, based on the performance of Mimi’s after the sale.
Bob Evans isn’t going to get all of that $30 million: In December, the company recorded a $16 million charge against that promissory note.
Fast-food chains fell in love with burritos in the 1990s and early 2000s. McDonald’s invested in Chipotle, which would ultimately thrive, and Jack in the Box bought Qdoba, which it still operates.
In 2002, Wendy’s made its move into the business, proving that not all such deals work out.
Wendy’s paid $275 million for the chain that year before it could go public, adding the concept to Tim Hortons, which Wendy’s owned at the time. Baja had 300 locations and at the time was bigger than Chipotle.
Yet by 2005, Wendy’s had to take a $175 million writedown on the Baja deal and closed dozens of locations. In 2006, Wendy’s sold the chain to some investor groups for $31 million.
Baja currently operates 160 locations and 23 La Salsa Fresh Mexican Grill. It was sold last year to the Canadian company MTY Food Group Inc. for $27 million.
In 2002, Yum Brands grabbed onto the co-branding concept, theorizing that it could flourish in the U.S. if it simply cobranded its concepts with other concepts, thereby eliminating the veto vote.
Then known as Tricon Global Restaurants, the owner of KFC, Taco Bell and Pizza Hut bought two more chains, A&W Restaurants and Long John Silvers. Yum had already been working with the chains’ owner, Yorkshire Global Restaurants, to cobrand the concepts.
Yum paid $320 million for the chains, which at the time had a total of about 2,200 locations.
Yet cobranding didn’t quite work out the way its proponents had hoped and the two brands, which unlike Yum’s other three chains did not have a big presence outside the U.S., was soon an afterthought.
By 2011, Yum sold the chains for amounts so small they weren’t considered material to the company’s earnings.
