Season 1 Episode 14: SPACs Used for Restaurant Acquisitions



Also Listen On:

1. McDonald’s Will No Longer Fight Minimum Wage Legislation
2. SPACs Used for Restaurant Acquisitions
3. Papa Murphy’s Sold to MTY Food Group
4. New Leadership at CKE Restaurants
5. GPS Hospitality Enters the Pizza Hut System

Title: Welcome to The Restaurant Boiler Room Episode 14. I’m your host, Rick Ormsby, Managing Director at Unbridled Capital.

Today, in the Boiler Room:

McDonald’s Will No Longer Fight Minimum Wage Legislation<
Special Purpose Acquisition Companies (SPACs) for Restaurant Acquisitions
Papa Murphy’s Sold to MTY Food Group
New Leadership at CKE Restaurants
GPS Hospitality Enters the Pizza Hut System

Tag Line: The Restaurant Boiler Room is a one-stop-shop for multi-million dollar merger and acquisition activity and financial complexities affecting the franchise restaurant industry. We talk money, deals, valuations and risk – delivered to the front door of franchisees, private equity firms, family offices, large investors, and franchisors on an every-other-week basis. Feel free to find our content at Unbridled Capital’s website at

Now, let’s enter the Boiler Room:

McDonald’s Will No Longer Fight Minimum Wage Legislation
Background: Various news outlets have reported that McDonald’s has reversed course and will no longer lobby against minimum-wage increases. In a recent letter sent to the National Restaurant Association, McDonald’s stated that “Going forward, McDonald’s Corp. will not use our resources, including lobbyists or staff, to oppose minimum wage increases at the federal, state or local levels, nor will we participate in association advocacy efforts designed expressly to defeat wage increases.
Comments: This announcement could be partly symbolic, but it is also concerning for many restaurant operators across the country. It is difficult to make money as a franchisee in the face of increased competition, new unit development cannibalization, commodity cost increases, and labor shortages. The federal minimum wage currently sits at $7.25 per hour, and most franchisees are paying average hourly rates closer to $10.00 (depending on the geography) because of the extremely tight labor market. There are 21 remaining states where the federal minimum wage of $7.25 still applies, 11 of which are considered Southern states.
Effect on M&A: With their massive global reach and sales, McDonald’s has a huge advantage in their ability to spend on technology. They just bought Dynamic Yield Ltd, a decision logic technology company that predicts consumer behaviors. Perhaps this is a continued step at moving towards automation of the labor model at McDonald’s. Whoever figures out automation, and can cut labor in stores, will be at an enormous competitive advantage versus the competition. Perhaps too McDonald’s is thinking that it has a stronger market position than its competitors and can outlast them as wage increases will force some unprofitable restaurant businesses to close their doors.

Special Purpose Acquisition Companies (SPACs) for Restaurant Acquisitions

Background: Danny Klein recently reported that Chuck E. Cheese is going public again, this time through a special purpose acquisition company (SPAC). CEC Entertainment, which also owns Peter Piper Pizza, said it expects to have a $1.4 billion enterprise valuation following the merger, or seven-and-a-half times the company’s estimated 2019 adjusted EBITDA of about $187 million.
Comments: What interests me here is the use of a special purpose acquisition company (SPAC) to complete this transaction. A special purpose acquisition company (SPAC) is a publicly-traded company that raises a blind pool capital through an initial public offering (IPO) for the purpose of acquiring an existing company. The money raised through the IPO of a SPAC is put into a trust where it is held until the SPAC identifies a merger or acquisition opportunity to pursue with the invested funds. In plain terms, basically, a management team raises public money from shareholders without investment in mind. It is a risky investment, certainly, but one that can provide capital and flexibility for management teams of small and mid-sized companies outside the traditional regulations and registration processes of a larger IPO.
Effects on M&A: We have now seen several SPAC deals in the restaurant industry in recent years. I haven’t worked with any client who has performed a SPAC; however, my impression is that this structure is very attractive for management in small and mid-sized distressed situations where a traditional equity and bank financing acquisition model is difficult. Perhaps SPACs will become a more common part of our vocabulary going forward.

Papa Murphy’s Sold to MTY Food Group
Background: MTY Food Group Inc. will acquire Papa Murphy’s, the Vancouver-based take-and-bake pizza chain. MTY will acquire all shares of Papa Murphy’s stock for cash at $6.45 per share, for a total cost of about $190 million, according to a press release. MTY is based in Canada and owns Taco Time, Baja Fresh, Cold Stone Creamery, Blimpie subs, Pinkberry, and TCBY frozen yogurt.
Comments: Papa Murphy’s was originally founded in 1981 under the name Papa Aldo’s. The company adopted the Papa Murphy’s name after merging with another take-and-bake pizza chain called Murphy’s Pizza in 1995. Papa Murphy’s puts out a great product, but sales and unit growth have languished in recent years as the industry has been saturated with competition and convenience at extremely low-price points from pizza competitors.
Effects on M&A: The pace of franchisor takeovers has been extremely high over the past several years. Expect the trend to continue, especially as legacy brands struggle to find capital to support new technologies, marketing programs, and the health of their franchise systems.

New Leadership at CKE Restaurants

Background: Jonathan Maze just reported that CKE Restaurants named Ned Lyerly as the company’s new CEO. Lyerly was the company’s president of international and has over 30 years of experience with the brands. He succeeds Jason Marker, who served as CEO for two years ago after a successful tenure as President of KFC in the US. We certainly wish Jason the best in his future endeavors.
Comments: Both Hardee’s and Carl’s have struggled to keep market share in recent years as competition from other burger chains has intensified. Additionally, a high concentration of Carl’s franchisees is on the West Coast, where wage increases have caused the most pressure to restaurant P&Ls. Maze reports Carl’s had a sales drop of 4.4% in 2018, while

Hardee’s declined by 3%, according to the Technomic Top 500 Chain Restaurant Report.

Effects on M&A: CKE needs a refresh on its older assets and competes more effectively with other brands. Refocusing on their home-made breakfast products should be key. Many franchisees have lamented the $5 strategy employed by KFC and Taco Bell, as Hardee’s and Carl’s had previously cast themselves as a premium burger player. Competing on price is always a dangerous but often necessary strategy. The unintended consequence is that oftentimes, your most loyal customers will trade-down, lowering ticket averages more than sales added from new customers. As M&A continues to be strong throughout the franchise industry, franchisees in these two brands should expect EBITDA multiples that are lower than their burger peers; however, many buyers are attracted to the high unit-count portfolios and opportunity for a turnaround.

GPS Hospitality Enters the Pizza Hut System

Background: Unbridled Capital recently provided sell-side advisory to Bullock-Scott Restaurant Group LLC of TN, GA, AL, and Carreca Enterprises, Inc. on the sale of 45 Pizza Hut restaurants in Tennessee, Georgia, and Alabama. The restaurants were sold to new franchisee GPS Hospitality, one of the country’s largest restaurant operators with roughly $650MM in annual revenues and 388 Burger Kings & 19 Popeye’s.
Comments: Says seller Jeff Bullock, “Rick and his team at Unbridled Capital did a superb job for our family. We knew we needed an advisor who had connections with family-offices and large franchisees outside of the Pizza Hut system, and Unbridled specializes in making a broader market beyond the existing franchise base to get higher prices with lower deal risk. Indeed, they brought several well-capitalized buyers to our business to make offers at record prices. Equally as important, they provided substantial help in finding solutions during due diligence, with lease assignment challenges, and with asset allocations to positively impact our tax liability. We would wholeheartedly recommend them to anyone considering a sale of their franchise.”
Unbridled is very thankful to Jeff and the entire family for the opportunity to have represented them, and we wish them the very best in this new stage of their lives. Over the past 18 months, Unbridled has sold about a dozen Pizza Hut businesses, many of them to family-office buyers we’ve introduced to the Pizza Hut brand. In this case, we are super-excited to welcome GPS Hospitality to Pizza Hut. They are great people with a proven track record of world class operations and brand stewardship. Congratulations and warm wishes to Tom Garrett, Scott Jasinski, Chris Phillips, and the entire GPS team. As a condition of this closing, Unbridled Capital will make a charitable contribution to the Pizza Hut museum at Wichita State University. We want to show our respects to the fantastic legacy of the Pizza Hut brand. We want to be a blessing because we’ve been blessed.

Thanks so much for entering the Boiler Room today. You can find our podcasts on iTunes, Google Play, Stitcher, TuneIn and Spotify. If you like these podcasts, please listen, rate and review! I also encourage you to visit our website at for the best franchise M&A and financial resources in the industry. Our website includes podcasts, videos, white papers and a list of our M&A transactions.

Disclaimer: Please note that neither Rick Ormsby nor Unbridled Capital LLC give legal, financial or tax advice. These podcasts represent opinions that have been prepared for informational purposes only. We expressly disclaim any and all liabilities that may be based on such information, errors therein or omissions therefrom.