Wendy’s could consider M&A to bolster Europe entry, CEO says

04 December 2019 - 08:55 am UTC

by Dayna Fields in Los Angeles

  • Dinner concepts may be complementary


  • Could partner with PE to accelerate global expansion


The Wendy's Company could consider M&A opportunities in Europe if a deal were to bolster its upcoming expansion throughout the continent, CEO Todd Penegor told this news service.


The US-based company is entering the UK marketplace in 2020 with an eventual 20 corporate-owned units and an eye to then enter Spain, Portugal, France and Germany, said Penegor on the sidelines of the recent Restaurant Finance & Development Conference in Las Vegas.


In a 6 November earnings call, the CEO counted expansion into Europe as one of its three major growth goals for 2020, noting that it aims to open 1,500 international units by 2024.


Launching a breakfast menu in 1Q20 as well as increasing digital sales are its other two organic growth goals, he said on that call.


At the conference, Penegor stressed that Wendy’s is currently focused on its organic growth strategy and not M&A.


But in response to the possibility of making acquisitions abroad, Penegor told Mergermarket that Wendy’s could consider acquiring a franchised restaurant brand in Europe if the deal accelerated its expansion on that continent.


An ideal acquisition target must complement and not compete with its lunch menu or real estate, Penegor told Mergermarket, noting dinner concepts could be of interest. It is flexible with its parameters, though, due to the untapped territory that needs to be covered in Europe, he said.


“I’d be hard-pressed to think about a brand that works for us internationally,” he said, “but if it helped us create scale to take along the Wendy’s brand, that is something that would be worth looking at.”


Competitors that already have a strong presence in Europe include Burger King, owned by Restaurant Brands InternationalMcDonald’s; and KFC, owned by YUM Brands, Penegor said at the conference.


When asked about the possibility of making a US acquisition, Penegor said its non-compete criteria would be more stringent to avoid cannibalizing existing franchisees. Dinner concepts could again be of interest, he noted.


Last year, Wendy’s reportedly engaged in brief preliminary talks to acquire the Papa John’s pizza franchise, according to a July 2018 Wall Street Journal report.


In August that year, in a bid to monetize an investment and focus on future growth of the Wendy’s brand, Wendy’s sold its 12.3% stake in Arby’s parent company, Inspire Brands, to Roark Capital for USD 450m.


Tapping private equity for help


Now as it looks to scale across Europe, Wendy’s is interested in tapping private equity and family offices to help with the effort, Penegor told Mergermarket.


“I think there are a lot of opportunities where PE can support growth because you are going to have to fight a big battle in Spain or Portugal or France or Germany,” he said, noting existing competition from McDonald’s and Burger King. “So you’re going to need some capital to really make a difference in that market.”


It is interested in forging equity-based joint ventures with institutional firms that have existing restaurant franchise operations, he said. Ideally, the JV could grow franchised stores via a master franchise agreement alongside the brand’s corporate build-out, he said.


The CEO noted that private equity firms recently helped the brand expand into Brazil and the Philippines.


The US burger giant has a market cap of USD 4.83bn and its shares closed on Tuesday at USD 21.39, against a 52-week range of USD 14.96-USD 22.84.


Deals are structured on a case-by-case basis depending on the needs of the region, the CEO said. “We’ll structure what works for both of us,” he said. “You can’t blanket.”


Wendy’s recently closed a JV deal in Brazil in which a local partner holds 40%, a US Wendy’s franchisee owns 40% and Wendy’s owns 20% equity, said Penegor, who noted Wendy’s does not typically prefer a minority stake.


Last month, Phillippines-based Udenna Corporation, a holding company founded by businessman Dennis Uy, acquired and is now master franchise holder of Wendy’s Philippines, which has 51 restaurants and is planning to expand, according to a press release.


In 2016, North Asia-based private equity firm The Longreach Group acquired a majority stake in Wendy's Japan, which acquired local chain First Kitchen and converted its 136 restaurants into a Wendy’s hybrid concept, according to a press release, which noted plans to build out new units and grow.


“In the old days, we didn’t let private equity (firms) come anywhere near Wendy’s. But as you think about what it takes to grow internationally, we’ve now opened up,” he said.