The massive sales process for NPC International's more than 1,300 restaurants is nearly complete following separate asset purchase agreements with Flynn Restaurant Group and Wendy's International.
NPC filed for bankruptcy protection in July 2020, citing COVID-19 as having a compounding effect on ongoing issues. Since then, it's been a big question of what would happen to all the restaurants owned by the No. 2 largest franchisee group on the Franchise Times Restaurant 200, our list of the top restaurant franchisees.
During the auction proceedings, Flynn Restaurant Group—already the largest franchisee group on the list—bid on the entire company as a "stalking horse" bidder. That set the bidding floor at $816 million. That process was soon canceled and now, after much negotiation, a deal seems in place.
Flynn Restaurant Group will take all of the more than 925 Pizza Hut restaurants, down from the 1,229 NPC reported at the end of 2019. Flynn will also take over close to 200 Wendy's locations in the Salt Lake City, Central Maryland and two Baltimore-area markets. In all, Flynn paid $522.5 million for the restaurants. That's roughly $475,000 per restaurant including both Pizza Hut and Wendy's. And there are other fees. Flynn will also pay for restaurant-level cash, inventory and $8 million in pre-agreed construction costs for the many NPC restaurants in some phase of construction. NPC acquired 140 Wendy's restaurants in 2017 under an aggressive update agreement.
The deal, if approved, will make Flynn the largest operator of Pizza Hut, Applebee's and Arby's. It also operates more than 130 Panera locations and more than 260 Taco Bell locations.
Jon Weber, CEO and president of NPC International's Pizza Hut division, said this was a positive outcome for the Pizza Hut operation.
“We are confident that NPC’s Pizza Hut restaurants will be in very good hands as part of Flynn Restaurant Group,” said Weber. “We have developed excellent teams at our Pizza Hut restaurants around the country, and I’m extremely proud of the way our organization rallied together in 2020 and maintained our commitment to delivering excellent quality and service.”
One big point of contention during the deal—and what brought it to a grinding halt and into mediation—was the potential conflict of interest in Flynn operating Arby's and Wendy's restaurants. Wendy's allegedly saw the brand as direct competition. Clearly, they came to some agreement, but that was the likely cause of splitting NPC's restaurants among Flynn and a group of "pre-qualified franchisees," according to legal documents.
The other 194 restaurants involved in the bankruptcy proceedings were split among this group. Delight Restaurant Group was awarded 54 Wendy's in the Raleigh, North Carolina, market. Legacy Restaurant Group will get 35 Wendy's restaurants in the Kansas City market and Yellow Cab Holdings will get 54 restaurants in the Pennsylvania market. Schmidt Family Restaurant Group and Superior Restaurant Group will each take half of the 51 restaurants across the Greensboro market. All in, the group paid $248,250,000 for the 194 locations, likely with fees similar to what Flynn will pay on top of that. That works out to a price of $1.2 million per Wendy's location.
“This is an excellent outcome for NPC’s Wendy’s restaurants and our team,” said Carl Hauch, CEO and president of NPC International's Wendy’s division. “We are very pleased that our restaurants will be joining the ranks of established, high performing restaurant franchise groups. We are grateful to Judge Isgur for his guidance during the mediation process and to Wendy’s, Flynn, the Wendy’s franchisee acquirers and our lenders for working diligently to allow for this result.”
Greg Flynn, founder and CEO of the San Francisco-based Flynn Restaurant Group, said this will be another great step in what he's called the state-and-federal model of operating the massive restaurant organization.
“Flynn Restaurant Group has built our business over the last 20-plus years by focusing on managing superior operations with great teams of people at premier restaurant concepts,” said Flynn. “The Pizza Hut and Wendy’s restaurants we have agreed to acquire from NPC align perfectly with this strategy, and we’re confident that our new team members will fit right in at Flynn Restaurant Group.”
A final sales hearing will be held on January 15 and objections can be raised until January 11. Given where the deal is today, however, it's unlikely that there will be any significant changes. The deals are expected to close by the end of the second quarter of 2021. Purchasers in both transactions agreed to offer employment to all of NPC International's restaurant, field and "substantially all other" non-field employees.