Church’s Chicken Changes Sponsors

Target: Church’s Chicken

Sponsor: Friedman Fleischer & Lowe

Seller: Arcapita

Atlanta buyout firm Arcapita has agreed to sell restaurant operator Church’s Chicken to Friedman Fleischer & Lowe, according to a source close to the situation.

The deal, advised on the sell side by Bank of America, represents a rare exit these days of a stable, growing company. Church’s Chicken has annual revenues that have grown between 8 percent and 10 percent through the recession as consumers trade down to less expensive dining, according to the company’s Web site.

In late May, San Francisco-based Friedman Fleischer & Lowe was selected as the winning bidder from an auction that started with as many as ten buyout suitors, the source said. In April, Buyouts reported the sellers had narrowed the bidding pool to three or four parties. At the time, Arcapita was seeking a full valuation of up to 8x EBITDA for the company.

The current deal, scheduled to close in early July, is valued at more than $300 million. An exact price could not be determined. Arcapita purchased Church’s Chicken in 2004 for $390 million from AFC Enterprises, the parent company of Popeye’s Chicken. The company generates more than $1 billion in revenue and has more than 1,500 locations, 400 of which are international.

Even if Arcapita’s exit price is ultimately less than its entry price, the firm could still earn a positive return on the investment between a previous sale-leaseback and the financial leverage it used to purchase the company. The firm contributed just 20 percent equity to the original deal.

The capital structure of Church’s Chicken under Friedman Fleischer & Lowe will be slightly more equity-heavy. Bank of America will join two other co-lead arrangers to put up debt worth roughly 40 percent of the transaction, in addition to a revolver. The deal will use no seller financing from Arcapita, as was previously expected.

Arcapita, formerly known as Crescent Capital Investments, does not have a traditional fund structure. One year ago, Buyouts reported that Arcapita was considering raising a traditional LBO fund backed by investors based in the United States. Currently, the firm’s buyout arm uses its balance sheet to finance equity investments. Arcapita then places the equity directly with a group of wealthy investors in the Middle East, primarily in Bahrain.

Arcapita declined to comment for this story and representatives of Friedman Fleischer & Lowe were not available.