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UPDATED: Raving Brands to sell Moe's to Schlotzsky's parent

ATLANTA Raving Brands has agreed to sell its Moe's Southwest Grill LLC division, franchisor of the namesake burrito chain, to Focus Brands, parent of the Schlotzsky's, Cinnabon and Carvel regional chains. Terms were not disclosed, but Focus president and chief executive Steve Romaniello said the purchase would be a cash transaction. A source close to the deal who asked to not be identified said that Focus will pay between $120 million and $140 million, or 10 times Moe’s earnings before interest, tax, depreciation and amortization.

The divestiture will pare Raving's stable of franchise concepts to seven restaurant brands, including Doc Green's Salads and Grill, Mama Fu's Asian House, Planet Smoothie, Shane's Rib Shack, PJ's Coffee and Flying Biscuit. Its lone non-foodservice operation is Monkey Joe's, a chain of 12 indoor play areas, and all of its restaurant brands except Flying Biscuit are quick-service concepts. Every chain but that one is virtually all franchised.

Moe's, founded in 2000, is Raving's flagship, with 344 units. With the divestiture, Raving would franchise about 630 units in total. Raving president Stephen M. LaMastra said the company has no plans at present to sell any of its other concepts, but acknowledged that "we're always looking at what's best for all of them, whether that's finding a financial partner or spinning them off. We'll continue to be looking at those options."

Raving "made some decisions around the middle of last year, and by last fall had decided to look around and find a partner for Moe's," said LaMastra. He and Romaniello said Focus and Raving had been talking for some time about a deal, since both are based here and their operations are in many respects complementary. Moe's is concentrated in the Southeast, with the Northeast targeted as a growth area. Focus' Carvel brand is strongest in the Northeast, and is pushing south. Its lunch-and-dinner concept, Schlotzsky's, has the majority of its units in Texas. Both companies are headquartered here.

"We've had our eye on Moe's for some time," said Romaniello, "and had really fallen in love with the concept." He acknowledged that Chipotle Mexican Grill is the leader in the burrito segment, but noted that the sector itself is strong, with ample room for secondary players. "We particularly liked that Moe's had a unique position within the category—it's more family-friendly than Chipotle, and it had enormous, enormous potential," Romaniello said.

In particular, he cited the potential for international expansion of Moe's. Focus has already expanded abroad, with a presence in the Middle East and Latin America.

"We liked the international possibilities," said LaMastra.

After Raving decided to divest the brand, "there was an extraordinarily high level of interest in Moe's," he said. "We considered all the different options," including a stock offering or private-equity deal, "but thought this was the right fit."

Romaniello said Moe's management would be transferred to Focus after the deal is completed. LaMastra said there will be a transition period, where Raving will work with Focus, that could extend to the end of the year.

The deal was announced as Raving is locked inlegal disputes with at least three franchisees of Moe's. Motley Fool, the online investor forum, pegged that tally at more than a dozen, though that total could note be confirmed. In March, three California licensees filed a lawsuit in State Superior Court,  alleging, among other things, violations of state franchise investment laws and unlawful trade practices. The plaintiffs sought $3.9million in damages. The three plaintiffs had earlier shuttered their stores.

LaMastra said the lawsuits had nothing to do with Raving's decision to sell Moe's. Rather, he indicated, the company wanted to spin off its largest operation and turn the company into an "incubator" for its emerging brands.

Focus currently franchises or operates 1,750 quick-service outlets. Cinnabon and Carvel are completely franchised. It acquired Schlotzsky's, with 367 franchises and 18 company stores, in November.

It is owned by Roark Capital Group, an equity company that also owns the McAllister's Deli chain, a would-be Schlotzsky's competitor that operates independently from Focus. McAllister's is based in Ridgeland, Miss. Schlotzsky's is based in Austin, Texas.

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