Sun Capital is looking to sell the Italian fast-casual brand Fazoli’s. But don’t expect it to be sold to DineEquity.
Earlier this week, the New York Post reported that Fazoli’s is for sale, and that DineEquity is a potential buyer. Multiple sources have confirmed to Nations Restaurant News that the chain is indeed for sale.
But, a spokesman for Lexington, Kentucky-based Fazoli’s refuted that the chain is in talks with the owner of IHOP and Applebee’s. “The speculation in the New York Post report is not true,” he said.
Comments on any possible sale of Fazoli’s, however, were referred to Sun Capital, which has refused comment.
Still, it would make sense that Sun would look to market Fazoli’s right now.
For one thing, the market is relatively ripe for acquisitions. Readily available, cheap debt and plenty of potential buyers looking to put investment cash to work have yielded high prices for restaurant chains.
On top of that, Sun has owned Fazoli’s for eight years. That’s plenty long for a private equity group, which typically looks to exit investments after five years or so.
Sun may also be able to argue that it has righted Fazoli’s ship after years of unsteadiness.
The private equity group bought Fazoli’s in 2006 when it had 319 units. The chain was founded in 1988 and had grown to become a leader in the burgeoning fast-casual sector. But at the time Sun bought the chain it had been struggling with declining sales and unit count for years.
The chain struggled further and then in 2008 named Carl Howard as CEO. The company overhauled its menu and service model, developed a new prototype and seems to have stabilized sales. Franchisees’ same-store sales have increased for 17 straight months and 50 of the past 53 months, the company said recently.
In August, for instance, franchisees’ same-store sales rose 4.9 percent, and they’re up 5.6 percent on the year. Traffic is up 1.9 percent for the year.
But it’s a smaller chain now than when Sun bought it. The company has 217 units in 26 states, but it has commitments from franchisees to build 15 units and is getting interest in international locations.
The Post piece said that Sun has hired the investment bank Duff & Phelps for the sale, and that a sale could fetch $100 million. A buyer could help the chain take the next step from a largely regional to a national concept.
Another option for a potential buyer would be refranchising. More than half of Fazoli’s units are company owned, and many buyers, notably private equity groups, will sell company stores to franchisees. The reason: Franchising is generally more profitable than is the business of running restaurants. It involves fewer capital costs, and companies are somewhat insulated from big swings in sales and from food costs.
As for DineEquity, it has indicated it’s looking for a third concept, likely a limited service chain and potentially a franchised fast casual restaurant with lots of growth potential. But that concept, apparently, is not Fazoli’s.