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Church’s Steps Out Of Popeye’s Shadow –

Atlanta-based Crescent Capital Investments took another step into the quick service restaurant (QSR) segment, acquiring Church’s Chicken in a $390 million deal that includes a 20% equity contribution. AFC Enterprises, which earlier this month completed its sale of Cinnabon to Roark Capital Group, was the selling party again in this transaction, leaving AFC with Popeye’s Chicken as its sole holding.

Church’s operates more than 280 domestic chicken restaurants, and has more than 1,200 franchised restaurants throughout the U.S. and in international locations. In 2003, Church’s system-wide sales totaled roughly $900 million.

The sale puts an end to what may have been one of the largest sibling rivalries in the QSR space, as both Church’s and Popeye’s have competed directly for consumers of fried chicken.

“Popeye’s was always the favored child there,” Crescent Director E. Stockton Croft said, hinting that while under AFC, Church’s did not receive the attention that sister company Popeye’s did. “Church’s is a cash cow,” he added. “The company produced very high cash flows, and that was transferred over to focus on the other brands.”

Crescent has already picked out a new CEO for Church’s, whose identity has not yet been made known, but Croft said has 20 years of QSR experience, primarily in pizza. Additionally, removed from AFC’s chains, Church’s can unveil new menu items, such as spicy chicken, that had previously been prohibited due to overlap with Popeye’s menu.

Crescent also intends to further Church’s push internationally, with expected new restaurant openings in Asia, Latin America and South Africa. This initiative, which was launched three to four years ago, also stalled as Church’s again deferred to Popeye’s. “The company started looking internationally about three to four years ago, but all of the international growth was centralized at AFC, and nearly all of that went to Popeye’s,” Croft said.

Additionally, Crescent believes that Church’s seat as the value-player in the urban market represents a growth opportunity as well. “The brand is fairly entrenched in the urban space,” Croft said, adding that the urban market is a rapidly growing demographic. Crescent anticipates continued growth in same-store sales, and the firm will continue to roll out additional locations, in an area that Croft described as the Southern arc stretching from Los Angeles down to Texas and back up to Atlanta.

In financing the transaction, Crescent will provide equity representing roughly 20% of the $390 million purchase price. SunTrust Bank will arrange a senior debt package making up approximately 40% of the value, while Drawbridge Special Opportunities Fund, LP, a division of hedge fund Fortress Investment Group, will participate in a sale/leaseback to cover the balance. The sale/leaseback will involve around 90% to possibly all of the stores, Croft said. The transaction is expected to close on or before December 21.

Crescent has previously invested in the restaurant space, and specialty coffee retailer Caribou Coffee Co. currently sits in the firm’s portfolio. Other investments include last year’s buyout of Loehmann’s Holdings, a specialty retailer based in New York, and American Pad and Paper, a manufacturer and distributor of legal pads and other office supplies. Also, a mere four days following the Church’s acquisition, Crescent announced the purchase of Cypress Communications Holding Co., a provider of voice and data communication services, in a deal valued at roughly $39 million.