Financial Backers Said ‘Go for it’ to Flynn’s Buy
Greg Flynn is CEO of Flynn Restaurant Group.
Then came December 2018 and the private company, led by Chairman and Founder Greg Flynn, acquired all 368 units from Arby’s largest franchisee, U.S. Beef, and captured a Franchise Times Dealmakers award, to be covered in full in the April issue.
I asked Flynn in a recent phone call to cite the reasons for the acquisition. “It’s an old system with demonstrated legs, and it’s had it’s up and downs,” he says. “You like to get in on the upswing vs. catching a falling knife.”
Old indeed. Arby’s itself was founded in 1964 and U.S. Beef just five years later in Tulsa, Oklahoma, by Bob Davis and son Jeff. The family were still owners at the time of the sale.
Arby’s has been on an upswing of sorts since late 2010, when systemwide same-store sales and store volumes began rising. Today, the nearly $4 billion (sales) chain is the second largest sandwich chain in the country, with 68 percent of its 3,300 units franchised.
Private equity firm Roark Capital has owned the brand since 2010. For its part, U.S. Beef reportedly rang up systemwide sales of $374 million in 2017—or about $1 million per unit. It ranked No. 21 on last year’s Monitor list.
The fact that Arby’s is a fast-food concept added to the attraction. “I wish to weight our company more to QSR. The margins are better and there is a bigger, deeper market,” the 54-year-old executive acknowledges.
Leadership also proved enticing to him. “The brand is being led by Rob Lynch,” he said. “Rob is from Taco Bell and a marketing guy. That’s the main thing you want as a franchisee.” Flynn and other Applebee’s franchisees were known to gripe about the absence of effective marketing when their franchisor was called DineEquity. (Leadership at that company, known now as Dine Brands, has since changed.)
Flynn contends his source of evergreen capital since 2014, the Ontario Teachers’ Pension Plan, quickly approved of the acquisition. “They pretty much said go for it. There was no pushback from anyone who’d heard about the deal,” he claims. Terms of the sale were not disclosed.
His pitch to OTPP, by the way, wasn’t based on a vivid description of Midwest expansion. Instead, he emphasized how the existing management team could drive sales and profits via reinvesting in deferred maintenance and fully staffing their Arby’s.
“We love building restaurants,” Flynn declares, “and we have built hundreds of them. But with U.S. Beef, we are at scale. It’s not part of the base plan to acquire more restaurants. The real growth is getting more out of your current assets.”