Dive Brief:

• Restaurant Brands International and Carrols Restaurant Group have entered into an agreement for RBI to acquire all shares of Carrols not currently owned by RBI in an all-cash transaction worth roughly $1 billion, or about $9.55 per share, the companies said Tuesday. 
• Carrols, Burger King’s largest U.S. franchisee, operates 1,022 Burger King units and 60 Popeyes restaurants across 23 states. The operator reported $1.8 billion in annual sales during the 12-months ended Sept. 30, 2023.
• This acquisition — the first billion-dollar deal of the year in the restaurant sector — marks RBI’s first transaction since it acquired Firehouse Subs for $1 billion in 2021.

Dive Insight:

RBI said this transaction, which is expected to close during the second quarter, is part of Burger King’s Reclaim the Flame program. Reclaim the Flame started with a $400 million initial investment in September 2022 to boost franchise profitability and grow sales. The program includes remodels, operational improvements, enhanced marketing and support for existing technology and digital assets. 

Following the completion of the transaction, Burger King plans to invest $500 million — funded by Carrols’ operating cash flow — to remodel about 600 Carrols restaurants that do not fit the brand’s “modern image” over the next five years. RBI said in an investor presentation that the transaction will accelerate the pace of remodels of restaurants in Carrols’ system from about 45 planned this year to 120 annually. Carrols’ current team of experienced operators will work with Burger King’s operations team to continue to run the acquired restaurants.

Burger King plans to refranchise a bulk of the 1,022 restaurants to new or existing franchisees who live relatively close to the restaurants in question. This process could take about five to seven years, RBI said. Burger King will maintain ownership of a couple hundred restaurants to use for “strategic innovation, training and operator development purposes.”

Burger King franchisees faced tough conditions in the past few years, with three major operators seeking Chapter 11 bankruptcy protections last year. Burger King bought 32 units from bankrupt Meridian Restaurants Unlimited in September. RBI said last year that the fast food chain could close as many as 400 low-volume U.S. restaurants despite system-wide improvements in profitability and same-stores sales. Burger King most recently reported its U.S. same-store sales were up 6.6% at the end of the third quarter.

Carrols’ Burger King restaurants have average sales of $1.7 million and reported 7.2% in same-store sales growth during Q4 2023. It also grew traffic in the last two quarters after six quarters of negative traffic growth, according to an investor presentation on the transaction. 

“Today's announcement is a testament to our more than 24,000 Carrols team members who have helped drive the company to record levels of profitability over the past 12 months,” Deborah Derby, president and CEO of Carrols, said in a statement. “We believe our team members will now have additional opportunities as part of the greater RBI family — in our office, in the field and especially in our restaurants, including for long-time managers who may want to become franchisees themselves.”