The Acquisition of Carrols Restaurant Group by Restaurant Brands International

Restaurant Brands International has recently announced its intention to acquire Carrols Restaurant Group, the largest Burger King franchisee in the U.S., in a deal worth approximately $1 billion in cash. This acquisition represents a significant shift in strategy for Burger King, which has primarily relied on franchising its restaurants for the past decade.

Under the terms of the deal, Restaurant Brands will pay $9.55 per share to acquire Carrols, whose stock closed at $8.42 on Friday, giving it a market value of $459 million. Following the announcement, Carrols’ shares closed up 12% on Tuesday, while Restaurant Brands’ stock fell 3%. The deal is expected to be completed by the second quarter of 2024.

As Burger King’s sales had been trailing behind its competition, the company decided to implement a $400 million plan to revive its U.S. business. The strategy focuses on investing in restaurant remodels and advertising to drive demand and boost franchisee profits in an effort to regain market share. Currently, Burger King only owns 175 corporate-owned locations, while the rest are franchised.

Restaurant Brands intends to rapidly remodel 600 of Carrols’ Burger King locations over the next five years and subsequently sell them back to franchisees. This approach will allow the company to concentrate its efforts on accelerating remodels and strategically refranchising the restaurant network into smaller packages. Burger King plans to work closely with new and existing franchisees located in the communities where they own restaurants. The company will invest approximately $500 million, funded by Carrols’ operating cash flow, to finance the renovations.

Following the sale of the majority of Carrols’ locations within five to seven years, Burger King plans to retain a couple hundred restaurants for strategic innovation, training, and operator development purposes. This move reflects the company’s commitment to ongoing growth and improvement in order to better serve its customers and strengthen its brand image.

The Implications

The acquisition of Carrols Restaurant Group by Restaurant Brands International has significant implications for the fast-food industry. Burger King’s decision to take a more hands-on approach and invest in remodeling its locations demonstrates a willingness to adapt and regain market share. By ensuring consistency in the brand’s image and perception, such efforts can positively impact consumer perception, recruitment, and staffing.

Carrols Restaurant Group has consistently outperformed the rest of Burger King’s U.S. system. In its recent preannouncement of fourth-quarter results, the franchisee reported a 7.2% increase in same-store sales for its Burger King locations, accompanied by a 2.9% increase in traffic. This success further underscores the potential of the Burger King brand and strengthens Restaurant Brands’ decision to acquire Carrols.

The acquisition of Carrols Restaurant Group by Restaurant Brands International marks an important shift in strategy for Burger King. Through significant investments in remodeling and advertising, Burger King aims to revitalize its U.S. business and regain its position in the highly competitive fast-food industry. By partnering with Carrols and strategically refranchising its locations, Restaurant Brands is poised to drive growth and innovation while delivering an enhanced dining experience for customers.