ACI, Western Growth Capital Exit Qdoba –

ACI Capital Co. and Western Growth Capital cashed in on their Qdoba Restaurant investment last month, serving up the Mexican grill to publicly-held burger chain Jack in the Box in a $45 million all-cash deal.

Jack in the Box’s attraction to the fast-casual, Mexican-food chain mirrors a growing trend in the industry and closely follows Wendy’s $275 million acquisition of Baja Fresh, which itself had private-equity backing from Catterton Partners, Oak Investment Partners and the Grumman Hill Group.

Qdoba runs 85 outlets in 16 states, and in 2002 logged system sales of roughly $65 million. By comparison, Salomon Smith Barney estimated that the business took in system sales of $38 million in 2000 and $52 million in 2001, which would mean year-over-year growth of 37% and 25% in the past two years, respectively. Additionally, Salomon Smith Barney reported that Qdoba’s same-store sales, which have shown growth in each of the last 14 quarters, jumped 12.3% in 2002, with preceding jumps of 8% to 10% in 2001 and 20% in 2002.

The $45 million purchase price represents a multiple of 0.7 times system sales in 2002, and values each existing restaurant at roughly $530,000. The acquisition is expected to be slightly dilutive to Jack in the Box’s near-term results and incremental to the company’s earnings within the next few years. Qdoba’s management, led by CEO Gary Beisler, will stay in place to run the business under its new owners. Beisler will report to Robert Nugent, chairman and CEO of Jack in the Box.

The acquisition of Qdoba appears to be a good fit with Jack in the Box, as both businesses are looking to further expand across the country. Additionally, the deal helps Jack in the Box supplement its core growth and also tempers the burger chain’s dependency on the struggling quick-service burger segment. Gregory Warner, a managing director at ACI, called it a “win, win, win deal” for all of the parties involved. He specified that the transaction “provided Jack in the Box with a solid growth platform, matched existing management up with a deep-pocketed partner, and also presented an attractive exit for [the investors].”

ACI invested a total of $8 million in Qdoba, with its first investment made in October 2000. Western Growth Capital also invested around $6 million, with its initial investment made at the end of 1997, and there were other private investors as well. David Peters, managing director at Western Growth Capital, said his firm held a majority stake in Qdoba, “by just a little bit” over ACI. With the completion of the sale to Jack in the Box, ACI realized an IRR “north of 50%,” according to a source close to the deal. Peters, meanwhile, said that it was a profitable enterprise for his firm as well, noting, “Everybody is happy with this deal.”

While most agree that the addition of Qdoba gives Jack in the Box a solid presence in the fast-casual, Mexican-food space, analysts disagree on whether the deal is good or bad for the acquirer. Banc of America Securities stated in a research note: “We have been concerned that any acquisition would deflect focus away from the operations of the core business, which have struggled over the past year.”

Wachovia Securities, meanwhile, said, “We view the acquisition of Qdoba Mexican Grill by Jack in the Box favorably as significant growth opportunities may exist in the fresh Mexican segment of the fast-casual market.”