Papa John’s refranchises 90 units in Texas with Sun Holdings

Dive Brief:

Papa John's has transferred its controlling stake in a joint venture with Blue and Silver Ventures to Sun Holdings, one of the company's largest domestic franchise partners, according to an 8-K filed with the SEC on Thursday.
The transfer gives Sun Holdings a controlling interest in 90 units in Texas. The two companies signed a franchise expansion deal last year to open 100 new units in Texas by 2029, marking Papa John's largest U.S. franchise deal to date.
Sun Holdings has pursued major franchise deals in recent years, adding 131 Applebee's restaurants last November. Sun Holdings' subsidiary Suncakes LLC also acquired 41 IHOP restaurants from CFRA Holdings in October 2020 after CFRA filed for Chapter 11 bankruptcy.

Dive Insight:

Papa John's expects the transfer to be revenue neutral, according to the 8-K. The 90 units accounted for $106 million in total revenues in 2021, producing about $4.8 million in net income for the pizza chain. Under the terms of the agreement with Sun Holdings, those 90 stores would have accounted for $4.7 million in net income attributable to Papa John's, according to the 8-K.

"[Papa John's] expects to provide Sun Holdings substantial scale to support new restaurant openings under its current, 100-restaurant development agreement with the Company, which commitment is in addition to the 90 refranchised restaurants. As a result, the deal is expected to accelerate the Company's domestic development, contributing to long-term earnings via high-margin franchise royalty growth," Papa John's told the SEC.

A press release accompanying the announcement highlighted the role Sun Holdings' expansion deal will play in Papa John's ongoing growth. Guillermo Perales, President and CEO of Sun Holdings, said in a statement that his firm's relationship with Papa John's has already had a meaningful return on its investment.

The pizza chain, in addition to its domestic deals with Sun Holdings, signed a deal with FountainVest Partners in January to open more than 1,350 stores in South China by 2040. Papa John's also signed a major development deal in August 2021 with Drake Food Service International to open 220 units in Latin America, Spain, Portugal and the U.K. by 2025. Two months earlier, Papa John's and PJ Western Group announced their intent to enter the German market and open 250 stores in Central Europe by 2028.

Since the start of the COVID-19 pandemic, Texas, where Sun Holdings is based, has emerged as a hotbed of restaurant franchisee growth compared to other American markets.