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Which came first: the fried chicken sandwich or the PE firm?

Popeyes is back in the spotlight with its new chicken sandwich, but would the company be where it is today without a years-long PE relationship?

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Fast-food-induced mass hysteria has once again gripped American society.

It all began on August 12, when Popeyes Louisiana Kitchen released a fried chicken sandwich meant to rival Chick-fil-A’s ubiquitous offering. The sandwich went viral after Popeyes took its beef (metaphorically speaking) to Twitter for a feud/marketing ploy with Chick-fil-A and Wendy’s, among others. Since then, Popeyes’ 2,000-plus nationwide locations have faced sandwich shortages.

On August 27, the chain announced it would halt selling the chicken sandwiches until the supply issue evens out—at an untold date. “Popeyes aggressively forecasted demand through the end of September and has already sold through that inventory,” the company reportedly wrote in a statement.

Of course, the sandwich is more than just a sandwich. Young political volunteers have registered sandwich-seekers to vote as they wait in line, and reporters have chronicled the conditions faced by employees who’ve become overworked due to the product’s popularity.

And believe it or not, Popeyes’ coveted sandwich even holds a connection to private equity.

Three decades of private equity

What could be considered Louisiana’s most famous kitchen, Popeyes was founded in 1972 in a suburb of New Orleans and began selling franchises a few years later. But then, in 1991, the company reportedly filed for bankruptcy after defaulting on nearly $400 million in debt.

Private equity helped the chicken purveyor bounce back, however. America’s Favorite Chicken Company was created in 1992, becoming the parent company of Popeyes and Church’s Chicken, the latter of which sold to Arcapita (fka Crescent Capital Investments) in 2004. In 1996, New York-based private equity firm Freeman Spogli acquired a majority stake in the group—later renamed AFC Enterprises—with a New York Times report at the time indicating a purchase price of $320 million. The capital infusion allowed AFC to reduce its debt burden and post a profit the following year for the first time in its history. Popeyes went on to make its public debut on the Nasdaq in 2001 with the support of Freeman Spogli.

Over a decade later, another restaurant group sought to invest in a successful fast-food chain that still had room to grow. That chain was Popeyes, and, in 2017, the fast-food chain staged a return to private equity via its acquisition by 3G Capital-backed Restaurant Brands International (RBI) for a whopping $1.8 billion.

The RBI Story

Based in Toronto, RBI is among the largest fast-food restaurant groups in the world, raking in over $32 billion in annual sales. Though established in 2014, its roots reach back further. Burger King—and private equity—sit at RBI’s core.

In 2010, 3G Capital acquired Burger King in a take-private deal worth a reported $4 billion. The burger chain then went public again in 2012 via a reverse merger. Two year laters, Burger King used 3G funding to purchase Tim Hortons for more than $11 billion—including a reported $3 billion in financing from Warren Buffett’s Berkshire Hathaway—and Restaurant Brands International was born out of the combination. Popeyes was then added to the mix a few years later. 3G’s foray into fast food extends beyond RBI; the firm also holds stakes in Anheuser-Busch InBev and Kraft Heinz, among others.

Today, RBI is nearly 37% owned by private equity after 3G capital shed 10.5% of its stake earlier this month. RBI shares have more than doubled since the beginning 2016, and it currently enjoys a market cap of about $20 billion.

If the chicken sandwich’s demand is any indication, it appears this ownership setup is paying off for Popeyes—for the moment at least. Conglomerates like RBI can spread institutional knowledge and marketing power. Case in point? Burger King, which also presents a model of successful marketing. In February, for example, the company released a well-received Super Bowl ad featuring a video of Andy Warhol unwrapping and eating a Whopper. Burger King also opened 1,000 new restaurants last year, while McDonald’s only opened 600, per Forbes.

Though private equity-backing lends benefits, it’s not without controversy. Having developed a perhaps unique reputation in the PE industry, 3G is known for its focus on a strategy that often involves cost-cutting and restructuring. RBI’s 3G-backed ownership of Popeyes seems to be no exception. One example of such restructuring came after the 2017 Popeyes’ acquisition, when Cheryl Bachelder, who had been the chicken chain’s CEO for nearly a decade, stepped down from her position with the company and RBI CEO Daniel Schwartz took the helm.

Sandwich sellouts

In January of this year, former Burger King president Jose Cil was tapped as RBI’s new CEO. Cil said in a recent interview with Business Insider that the development and marketing involved for the chicken sandwich took well over a year to execute. Still, the response to the product “exceeded our expectations a bit,” he added.

Like the RBI story, the Popeyes trajectory is one of steady growth. Since the sandwich’s debut, the price of RBI’s stock has risen about 5%.

So, if you’re ever able to get your hands on the new Popeyes chicken sandwich, keep in mind the money that’s behind it. It’s certainly an interesting topic to discuss as you wait in a potentially lengthy line, whenever the product makes its return to stores.

Image via manley099/iStock/Getty Images Plus

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    Written by Eliza Haverstock
    Eliza Haverstock was a PitchBook writer covering venture capital, startups, and private equity.

    A graduate of the University of Virginia where she majored in history and economics, she’s also a native of the Washington, DC, area. Previously, Eliza worked as a news editor for her college paper, The Cavalier Daily, and interned as an industrials reporter for Bloomberg in New York.
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