Apple American Group LLC, Applebee’s largest franchisee, agreed to acquire 66 corporate locations in the New England region from parent company DineEquity Inc., the companies said Tuesday.
The purchase agreement is the third refranchising deal struck by San Francisco-based Apple American since Applebee’s Neighborhood Grill & Bar was acquired by DineEquity in 2007. Apple American currently operates about 270 Applebee’s locations in 11 states.
Terms of the latest agreement were not disclosed. But in an unusual step, Apple American has agreed to accelerate the Applebee’s revitalization efforts by pledging to remodel all of its New England restaurants by the end of 2012.
Greg Flynn, Apple American’s founder, chairman and chief executive, told Nation’s Restaurant News on Wednesday that the quick remodeling plan was his idea, saying it offered an opportunity to restage the entire market with the chain’s new look. The refresh program includes elements both inside and outside the restaurants, from new awnings and signage to a new bar and internal décor.
Flynn said he has been an active proponent of the remodel plan, saying his restaurants have seen as much as a 5-percent sales lift after completing the renovations.
“It signals that there’s something new at Applebee’s,” said Flynn said. “It looks like a brand new and contemporary restaurant.”
Last month, Apple American received a strategic growth investment from Goldman Sachs Capital Partners, along with members of the franchise group’s management team. Current investment partner Weston Presidio also remained involved.
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Apple American’s latest acquisition includes Applebee’s locations in Massachusetts, New Hampshire, Maine, Rhode Island, Vermont and parts of New York.
Since buying the chain, DineEquity has sold 258 corporate Applebee’s locations. After the latest Apple American deal closes, 95 percent of the Applebee’s system will be franchised, DineEquity said.
DineEquity said the transaction is expected to net $49 million after taxes and reduce the company’s sale-leaseback-related financing obligations by about $12 million, of which $9 million will be removed from the parent company’s balance sheet.
Once completed, the deal is also expected to result in about $3 million in annualized general and administrative savings. Costs of the transaction are expected to be about $9 million.
DineEquity said the 66 units have an average unit volume of $2.1 million based on the year ended March 31.
“We are delighted to move one step further towards achieving our long-term strategic goal of becoming a predominantly franchised system,” said Julia Stewart, DineEquity’s chairman and chief executive, in a statement.
She added: “Since the closing of the acquisition of Applebee’s in November 2007, we have refranchised more than half of Applebee’s company-operated restaurants, enabling us to leverage free cash flow to pay down debt and focus on enhancing the Applebee’s restaurant experience through comprehensive marketing, menu, operations and remodel strategies.”
Applebee’s revitalization initiatives have included the addition of later hours, a renewed emphasis on the bar, the addition of a lower-calorie menu line and lunch deals starting at $5.99.
For its March-ended first quarter, DineEquity reported that same-store sales increased 3.9 percent for Applebee’s’ domestic locations. For the year, same-store sales are expected to rise between 2 percent and 4 percent.
Glendale, Calif.-based DineEquity operates or franchises 2,011 Applebee’s locations as well as the 1,504-unit IHOP family-dining brand.