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Apollo Buys Qdoba for $305M

Qdoba restaurant

Jack in the Box Inc. [NASDAQ:JACK] announced today that it is selling its subsidiary Qdoba Restaurant Corporation to Apollo Global Management [NYSE:APO] for $305 million. The company of Mexican cuisine fast-casual restaurants operates and franchises more than 700 outlets. The transaction is expected to close by April 2018.

Jack in the Box outlet growth flatter than a pancakeLenny Comma, chairman and chief executive officer of Jack in the Box Inc., said, “For the past several months, we have worked closely with our financial advisors and evaluated various strategic alternatives with respect to Qdoba, including a sale or spin-off, as well as opportunities to refranchise company restaurants.”

Jack saw transactions drop in its burger chain restaurants by 5.5 percent in 2017. That was down from a 2.9 percent drop of Jack customers from the previous year. Qdoba saw a drop as well (see table).

Over the last year, Jack in the Box has been selling its company-owned restaurants at a quick rate to franchise buyers. However, Jack’s net restaurant count in both company and franchise outlets has been flatter than the mini pancakes that it sells for breakfast. By the end of 2017, the burger chain had the same number of outlets as it did in 2013 — 2,251 restaurants.

While Qdoba was growing its company-owned units, Jack in the Box has been copying its main rivals McDonald’s and Wendy’s by selling its company restaurants off in a target to become an asset light franchisor with much fewer of its own company operated units. Jack in the Box Inc has been able to sell its company units despite its customers leaving for elsewhere and the subsequent drop in same-store sales in its affiliated restaurants.

Troubling Jack & Qdoba restaurant numbers '17 v '16
Qdoba transactions -4.8%
Jack in the Box transactions -5.5%
Qdoba same-restaurant sales -3.0%
Jack same-restaurant sales -1.3%

With the selling of Qdoba, Jack frees itself to focus solely on lifting up Jack.

“Following the completion of this robust process, our board of directors has determined that the sale of Qdoba is the best alternative for enhancing shareholder value and is consistent with the company’s desire to transition to a less capital-intensive business model.”

Jack in the Box, which itself has 2,200 quick service restaurants, plans to use the net cash proceeds from its sale of Qdoba to retire outstanding debt, as required by the terms of its credit facility.

Apollo Senior Partner Lance Milken said, “We are extremely excited to be acquiring Qdoba and look forward to working with the management team, employees and franchisees to continue building the Qdoba brand. We are firmly committed to Qdoba’s continued growth as a leading fast-casual restaurant operator.”

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.