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Sources: Baja Fresh for sale

Company has no comment, private-equity players say timing may be right for sale

Baja Fresh, the 255-unit, fast-casual chain owned by investor and entrepreneur David Kim, may be for sale, according to people familiar with pending deals in the restaurant market.

Nation’s Restaurant News spoke with five sources either involved with the Cypress, Calif.-based chain or in the know on restaurant deal making. Each confirmed that Baja Fresh is being actively shopped by chief executive David Kim, but they asked to speak without attribution because of their business relationships.

Kim acquired Baja Fresh from Wendy’s International in 2006 for $31 million, just four years after Wendy’s itself acquired the chain for $275 million.

Jerry DeLucia, a spokesman for Baja Fresh, said Kim was traveling Friday and unavailable. The company had no comment on the sale rumors, he said.

Under Kim, Baja Fresh has declined to disclose sales data. According to Nation’s Restaurant News Top 200 census, the chain was estimated to have systemwide sales of $304 million in 2009, the last year analyzed, which was a decline of nearly 10 percent from 2008.

Baja Fresh ended 2009 with 255 units, including 135 company and 120 franchised locations, according to NRN research. Unit counts also reflected a nearly 10 percent decline year to year. Estimated sales per unit in 2009 totaled $1.13 million, a decline of nearly 3.5 percent from the prior year, NRN research showed.

Craig Weichmann of Weichmann & Associates, a boutique merger-and-acquisitions firm, described Kim as an “opportunistic buyer” who picked up Baja Fresh at a great price and now has the challenge of demonstrating improvement to potential buyers.

“Your goal is to stabilize — and I think that has occurred — and perhaps even show some forward movement. That’s what investors want to see,” Weichmann said.

A Cinnabon franchisee and owner of The Sweet Factory candy-store chain, Kim in 2007 also acquired the La Salsa Mexican Grill chain from CKE Restaurants Inc.

It was unclear Friday whether the La Salsa brand was included in the proposed sale. The two brands, as well as the Atlanta-based Canyons Burger brand, are operated under the company Fresh Enterprises; Purveyor of Fresh Brands.

Kim’s $31 million buying price in 2006 for the then 295-unit Baja Fresh has been described as either the bargain of the century or a fire-sale jettisoning of a troubled holding.

Paul Huffman, managing director of Los Angeles-based investment banking firm Hadley Partners Inc., said the price included numerous underperforming units.

But today, the fast-casual segment is an attractive space and “the market’s probably grown into itself,” Huffman said. “That could mean better times for Baja Fresh.”

Industry observers told Nation’s Restaurant News that it was no surprise the notoriously media-shy Kim appeared earlier this month on the television show “Undercover Boss,” in which he donned a disguise and worked the ranks at several Baja Fresh units. It is a big branding move for a chain that has until now been under the radar, sources who requested anonymity said.

An episode of the show last year featured Hooters of America Inc. chief executive Coby Brooks. At the time, that chain was also for sale, and in January, Hooters was acquired by an investor group led by Chanticleer Holdings Inc.

Founded in 1990 by Linda and Jim Magglos, Baja Fresh was one of the first fast-casual chains to pioneer a menu made with fresh ingredients, no microwaves, no freezers, no can openers, no lard and no MSG.

The founders sold the chain in 1998 to an investor group headed by restaurateur Greg Dollarhyde, who grew Baja Fresh from 45 locations to 249 units before Wendy’s International acquired the chain.

Wendy’s continued to grow the chain to more than 300 units, though poor-performing locations, particularly in the East, later closed as the fresh Mexican category became increasingly crowded with rivals Chipotle Mexican Grill and Qdoba Mexican Grill.

During the four years of Wendy’s ownership, average unit volumes for corporate stores fell steadily from $1.5 million in 2002 to $1.2 million in 2005, according to securities documents.

Contact Lisa Jennings at [email protected].

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