Dive Brief:

• Delight Restaurant Group has acquired 54 Wendy's restaurants in the Raleigh, North Carolina, market, according to a press release. The company plans to build additional Wendy's restaurants in the area and remodel some of its acquired restaurants.
• The acquisition is part of the bankruptcy deal with NPC International and builds on Delight's current portfolio of 57 Wendy's and Taco Bell restaurants across North Carolina, Virginia, Indiana and Michigan, and now has 111 units.
• NPC International filed for Chapter 11 bankruptcy in July and sold all of its locations. Flynn Restaurant Group, the largest restaurant franchisee in the U.S, acquired most of its assets, including about half of its 393 Wendy's restaurants. Flynn closed its acquisition of the restaurants last week. 

Dive Insight:

Delight's acquisition adds $85 million in gross annual revenue and over 1,500 employees to its footprint. The sale of these restaurants to an existing franchisee is also a desired outcome for Wendy's corporate, which objected to the sale of units to Flynn Restaurant Group due to the franchisee's interest in competitors Panera and Arby's.

Wendy's has also expressed concern over one franchisee having too many units, and capped Flynn's acquisition at 400 restaurants. This split between Flynn and Delight should be a good opportunity for both franchisees to grow their Wendy's footprints and put the brand in good hands at the same time, as both franchisees are seasoned operating partners. Delight is one of Restaurant Finance Monitor's Top 200 largest franchisees in the U.S., with a total revenue of more than $185 million, according to the press release. Flynn Restaurant Group's recent acquisition of NPC's Pizza Hut and Wendy's locations will bring the company's annual sales to about $3.5 billion.

Other Wendy's franchisees gained bigger footprints from the NPC sale as well, including Legacy Restaurant Group, which acquires 35 restaurants in the Kansas City market, and Yellow Cab Holdings, which will add 54 restaurants in Pennsylvania to its portfolio, according to Franchise Times. Schmidt Family Restaurant Group and Superior Restaurant Group will split 51 restaurants in the Greensboro, North Carolina, market.

"It was nice to be able to get a handful of existing franchisees to participate in that NPC transaction," Wendy's CEO Todd Penegor, said during its most recent Q4 earnings call. "[We're] very encouraged that the Flynn Group came also in. They're really focused on transforming the markets."

Wendy's delayed new unit commitments as part of its COVID-19 relief package. The company is now looking to ramp up its new development commitments, however, through both existing and new franchisees and is looking at 2% to 3% net new development in 2022 and beyond, Penegor said.

Wendy's generated 5.5% same-store sales growth in its U.S. market in Q4 2020. Its franchisees should be seeing cash-on-cash returns of 15% to 20%, Wendy's CFO Gunther Plosch said in the Q4 earnings call.