The future for CKE: Continuity

Franchisees of the Carl’s Jr. and Hardee’s restaurant brands said Wednesday that news of the impending sale of franchisor CKE Inc. to Roark Capital Group has a big upside: Continuity.

As part of the acquisition, members of CKE’s senior management team, led by chief executive Andy Puzder, will take a minority stake in the company, bringing to rest rumors that an acquisition might result in the CEO's departure.

“I’m not going anywhere,” Puzder told Nation’s Restaurant News. “I’m heavily invested in this deal.”

Private-equity firm Roark Capital Group said Tuesday it would acquire a majority stake in CKE, the Carpinteria, Calif.-based parent to the 1,409-unit Carl’s Jr. and 1,977-unit Hardee’s quick-service chains. Terms of the deal, which is expected to close in the fourth quarter, were not disclosed. A Reuters report put the acquisition value between $1.65 billion and $1.75 billion.

Puzder said he could not comment further on the details of the deal, but noted that a commitment to keep top management in place did exist.

Observers have also speculated that a sale of CKE could result in the splitting of Carl’s Jr. and Hardee’s. Puzder put that to rest as well.

“I don’t think it would be rational to split up the brands,” Puzder said. “We don’t have two brands. We have two banners, but we really run one brand.”

John Nelson — who owns 13 restaurants in Idaho and is president of the Star Franchisee Association, which represents about 90 percent of Carl’s Jr. operators — said not much is expected to change for franchisees.

“Continuity is a good thing,” he said. “We’ve been dealing with Andy for a long time. We’re relieved the deal is done and that management can focus on managing the brand.”

Under an affiliate of Apollo Global Management LLC, which bought CKE in 2010 in a deal valued at about $1 billion, franchisees enjoyed some increased purchasing power and efficiencies, Nelson said. Joining Roark’s extensive restaurant portfolio offers even more potential for purchasing strength, he noted.

Bryan Haas, president of the Independent Hardee’s Franchise Association and an operator of nine Hardee’s restaurants in the Carolinas and Tennessee, agreed. “We certainly don’t want to lose Andy,” he said. “We’re happy he’s staying.”

Haas said he had spoken with Roark officials and was encouraged by the potential for the match.

“Roark is based in Atlanta, and the heart of Hardee’s is in the South,” he said. “I think they understand the brand.”

Carl's Jr. and Hardee's came together in 1997 after Carl’s Jr.’s then-CEO William Foley decided to buy the then-2,500-unit Hardee’s with the goal of converting them to the Carl’s Jr. brand.

Puzder, who was Carl’s Jr.’s general counsel at the time, talked him out of the conversion plan, arguing that Hardee’s deep brand equity in the region would be lost.

When Puzder was named CEO in 2000, Hardee’s was suffering from declining sales, so he embarked on a multi-pronged turnaround program, closing underperforming locations and re-positioning Hardee’s. Puzder set out to improve all aspects of the operation, from the chain’s service – literally scripting how workers should interact with guests – to cleanliness. On Hardee’s menu, he added the indulgent Angus beef burgers in various sizes, for which sister brand Carl’s Jr. had become known.

The result: about 14 years of average unit volume growth, Puzder said. For the latest fiscal year ended Jan. 31, average unit volumes at Hardee’s domestic franchise locations totaled $1.1 million and same-store sales rose 3.9 percent. Carl’s Jr.’s domestic franchise units averaged $1.13 million in sales for the year, with a same-store sales increase of 2 percent.

A 'good match' for CKE

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Roark’s restaurant investments include a diverse range of brands, from the casual-dining Miller’s Ale House to international snack concept Cinnabon. Puzder noted that the deal offers much in the way of potential synergies.

“Roark ... has great expertise, and we’re going to take as much advantage of that as we possibly can,” he said.

In courting CKE, Roark officials were very supportive of the quick-service company’s business plan -- in particular the wide runway for international growth, as well as plans to expand the brands domestically in the Midwest and in Texas, he added.

Roark is set to purchase CKE at a time of growing momentum for the franchisor's two chains, said Kevin Burke, managing director of Trinity Capital LLC in Los Angeles, which was not involved in the deal. Both Carl's Jr. and Hardee's have reported 12 consecutive quarters of same-store sales increases.

“It’s a good match,” Burke said. “Roark has really demonstrated that they understand the consumer psychology as it relates to restaurants.”

Burke said fomer owner Apollo was smart to turn to a private sale after attempting to take CKE public again last year, a move that was shelved in light of what the company called “market conditions.”

This year, restaurant brands are showing valuations in the double digits, Burke said, while the IPO market has been mixed.

Unlike most other private-equity firms, Roark is structured financially in a way that does not impose exit strategy deadlines that often force investors to sell a brand at a less-than-optimal time, he added.

So far, Roark hasn’t exited any of its restaurant investments, which it began accumulating in 2001, when it acquired Carvel Corp. for $30 million.

John Gordon, principal of Pacific Management Consulting Group in San Diego, which was not involved in the deal, said Roark likely sees CKE as a growth opportunity, and the private-equity firm has the capital, infrastructure and experience to devote to development.

“Because Apollo loaded the balance sheet with debt, I think Roark feels the upside is growth,” he said. “And Roark has the ability to devote perhaps a longer time period to Carl’s Jr.’s international growth than Apollo did.”


Contact Lisa Jennings at [email protected].
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