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A private Back Yard

Equity group pays $38 mill for chain


Back Yard Burgers

Headquarters: Memphis
Total restaurants: 180
Franchises: 136
2006 revenues: $44.7 million
2006 net income: $876,000
Per-store sales (2006): $885,000
About the company:
Lattie Michael, a 20-year grocery veteran, founded Back Yard Burgers in Cleveland, Miss., in 1987 and began franchising soon thereafter. The company went public in 1993. It specializes in higher quality burgers and table service and is often described as a step between fast food and fast casual.

Persistence has paid off for BBAC. The Atlanta-based private equity firm has been trying to buy Back Yard Burgers for nearly two years and was spurned on at least four offers. Finally, in June, the Memphis-based burger chain said yes to No. 5: a cash-and-debt offer valued at $38 million that will put the company in private hands.

The deal could provide a significant boost for Back Yard, which has languished in recent years, giving the company a better position in the fast-casual burger market. “They have a very nice product, but not a lot of distribution,” said Chris Muller, director of the Center for Multi-Unit Restaurant Management at the University of Central Florida.

It also gets Steve Lynn—the private equity group’s CEO—another shot at the restaurant business. Lynn gained notoriety for turning around the drive-in chain Sonic in the late 1980s and early 1990s before he moved onto Shoney’s, where he had less success and was replaced in 1997. “I’m really excited that someone with Steve Lynn’s character will be involved with the system,” Lattie Michael, Back Yard’s founder, told Franchise Times.

The deal almost certainly means Michael’s role at the burger chain will come to an end. After spending 20 years in the grocery business, Michael decided in 1986 to start a restaurant. An avid back-yard cook, he settled on burgers. “I wish I could say I had a master plan,” he said. “I just opened a store to see where it went.”

He had franchise inquiries within 90 days of opening. In the 1990s, Back Yard Burgers established itself as a destination for quality burgers at a time when most fast-food companies were competing on price. In 2001, it was the first quick-service restaurant to use marketing darling Angus Beef in its burgers.

Other fast-food companies took notice, and started competing on quality. In addition, a co-branding deal with Yum! Brands fell through in 2004.

Since then, the company’s stock price has languished at between $5 and $6.

Still, many of the company’s numbers are heading in the right direction. The number of stores has grown by a third since 2004 and revenues have grown 14 percent between 2003 and 2006, when the company took in $44.7 million. Same-store sales, a key indicator of restaurant health, grew 7 percent last year.

But with its stock price still struggling, the company was a ripe takeover target. The private equity group, BBAC, is a subsidiary of Atlanta-based investment group Cherokee Advisors. BBAC owns 8.81 percent of Back Yard stock, making it the chain’s largest stockholder.

The firm started making efforts to buy the burger chain as far back as November 2005. Those efforts intensified last year, when Cherokee’s chairman, Reid Zeising, held informal discussions with Back Yard. This year, BBAC nominated both Lynn and Zeising to Back Yard’s board of directors.

Back Yard finally accepted an offer of $6.50 a share, which was 20 cents more per share than the spurned offer last year. It was 29-percent more than the stock price at closing on June 8. As a result, Back Yard joins a host of other companies going private.

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