HOW A MUTUAL HISTORY HELPED TO FUEL THE RBI-FIREHOUSE DEAL

A MUTUAL HISTORY HELPS FUEL THE RBI-FIREHOUSE DEAL

The CEOs of Restaurant Brands International and Firehouse Subs bonded over their early years at Burger King. The result was a $1 billion acquisition and more international growth for the sandwich concept.

Don Fox and José Cil did not know one another in the early 2000s, when both were at Burger King. But those couple of years would prove important a few weeks ago when the two began talking about Cil’s Restaurant Brands International acquiring Fox’s Firehouse Subs.

The two apparently bonded about Fox’s work in research and development and their respective experiences inside the test kitchen. “We really hit it off,” Fox said.

Those conversations helped yield the deal announced on Monday, with RBI, the owner of Burger King, Tim Hortons and Popeyes, agreeing to pay $1 billion for the sandwich chain.

That makes it the smallest of the three deals in RBI’s history. But it is much bigger when calculated on a multiple of earnings.

Firehouse is expected to generate $50 million in adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization—giving it an acquisition multiple of 20x, not much less than the 21x RBI paid to buy Popeyes.  

The deal is also different in another way: Rather than fold Firehouse into its U.S. headquarters while executives scatter, both Fox and Firehouse CFO Vincent Burchianti will remain in their positions. And Firehouse will remain in its Jacksonville, Fla., home.

Yet, Fox said, that ensures the company’s culture will remain in place after the deal is complete, which is expected in a few months. “It was very important to our cofounders that this deal be done with the right partner,” he said. “If that wasn’t there quite simply the founders wouldn’t have sold the company.”

That’s also the price that comes with one of the industry’s most consistent growth chains.

RBI has long been rumored to be interested in a sandwich chain, but those rumors focused on Subway, the sector’s giant, though sources had downplayed such a possibility to Restaurant Business.

The company has instead targeted companies with well-established names, highly franchised businesses and a clear path to growth.

In Tim Hortons, for instance, the company was dominant in Canada but with only a small presence in the U.S. and almost nothing anywhere else. Popeyes, meanwhile, had several years of success but was only a fraction of the global size of rival chicken chain KFC.

Firehouse fits that mold better. It is the fourth largest of the sub sandwich chains, following Subway, Jimmy John’s and Jersey Mike’s. And its same-store sales have grown 20% this year, which total system sales on track to hit $1.1 billion.

Over the past decade, the chain’s system sales have quadrupled as its unit count has tripled.

Its relatively recent move into Canada has proven that the brand can work outside the U.S.—an important consideration for RBI, which has made a name for itself with its international expansion.

“The business volumes in Canada, they exceed the U.S. volumes,” Cil said. “They are already quite good and compelling. The brand is resonating well in its first forays into the international market.”

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Firehouse, meanwhile, will become part of one of the country’s largest restaurant brand operators, giving the brand access to resources it wouldn’t have as a stand-alone company. “Digital is a good example,” Fox said. “We have a great presence there. But they still have a lot of resources and talent we don’t have. Left to our own devices, it would have taken us a lot longer from a resource level to get that.

“I’m jazzed about it.”

Those resources should speed the company’s growth in the coming years. Both Popeyes and Tim Hortons have had strong success in international markets since their respective acquisitions, as has Burger King, though Tims has struggled in the U.S.

“If not for the partnership, international development would be much farther down the road,” Fox said. “It’s a matter of talent and expertise. It would take fundamentally longer.”