Church’s Chicken swaps sponsors

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 of a stable, growing company. Church’s Chicken has annual sales that have grown between 8% and 10% through the recession as consumers trade down to less expensive dining, according to the company’s website.

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

In late May, San Francisco-based Friedman Fleischer & Lowe was selected as the winning bidder from an auction that started with as many as 10 buyout suitors, the source said. In April, PE Week affiliate publication Buyouts reported that the sellers had narrowed the bidding pool to three or four parties. At the time, Atlanta-based 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 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 the sale-leaseback and financial leverage. The firm contributed just 20% equity to the original deal.

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 U.S.-based investors.

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. —Erin Griffith