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Roark Capital: Leader of Franchise Investment? (2024)
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Ailen Faiad: March 10, 2023
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Neal Aronson founded Roark Capital in 2001 and is a member of Roark’s Investment Committee. In addition to his responsibilities as Managing Partner, Neal is actively involved in Roark’s investments in Inspire Brands, Driven Brands, and FOCUS Brands. Neal was previously the Chairman of the Board of Roark’s prior investment in Wingstop.
Aronson began his career in the corporate finance department at Drexel, Burnham, Lambert Inc. after he received a B.A. from Lehigh University. Aronson worked for several firms, including hedge fund Odyssey Partners. In 1995, he helped launch U.S. Franchise Systems, an Atlanta-based hotel franchisor that began with one brand and 22 hotels in nine states. When the company was sold in 2000, it had three brands and some 500 hotels in all 50 states and five countries.
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What Does Roark Capital Do?
Roark is an Atlanta‐based private equity firm with $33 billion in assets under management. The company “focuses on investments in consumer and business service companies, with a specialization in franchised and multi‐location business models in the restaurant, specialty retail, consumer and business services, and health, wellness, and beauty sectors.”
Since its inception, the affiliates of Roark Capital have acquired 98 franchise/multi‐location brands, which generate approximately $61 billion in system revenues from 66,000 locations located in 50 states and 89 countries. Its portfolio companies span multiple industries including food, restaurants, specialty retail, health, wellness and beauty, retail healthcare, business services, and education.
How Much Is Roark Capital Worth?
Roark Capital is estimated to have over $33 billion in assets under management. The firm is focused on leveraged buyout investments in middle-market companies. Primarily in the franchise/multi-location, restaurant and food, health and wellness. And business services sectors. Their investments include everything from Anytime Fitness to Wingstop. A wide variety of brands with one thing in common: franchising. It makes sense, as Roark founder Neal Aronson started the company after selling U.S. Franchise Systems, a hotel franchisor. His experience equipped him with the skills and the knowledge of making a profit from franchising, and how to do it right.
Goals
Unlike a lot of private equity firms, Roark’s goal is not to buy and sell in quick succession for a fast profit. Rather, Aronson and his team instead look to help acquisitions improve operations and hold onto them for long-term return on investment.
The biggest reverberations in the restaurant M&A space came when Roark’s Arby’s chain bought Buffalo Wild Wings for $2.9 billion. As BBW’s stock price softened due to weaker sales, Roark bought the chain for $157 per share, a 38 percent premium. That put more than 1,250 more locations under Roark’s umbrella, which also includes Hardee’s and Carl’s Jr. operator CKE Restaurants. In July, the company bought Jim ‘N Nick’s Bar-B-Q.
Brands that Work with Roark Capital
Some of the brands that Roark Capital is involved in are: Inspire Brands (the owner and franchisor of Arby’s, Baskin-Robbins, Buffalo Wild Wings, Dunkin’, Jimmy John’s, Rusty Taco, and Sonic), Nothing Bundt Cakes, FOCUS Brands (the owner of Auntie Anne’s Pretzels, Carvel Ice Cream, Cinnabon, Jamba, McAlister’s Deli, Moe’s Southwest Grill, and Schlotzsky’s), The Cheesecake Factory, and previously Corner Bakery, Il Fornaio, Naf Naf Middle Eastern Grill, and Wingstop.
Strong Vision
“We believe in building these businesses,” Aronson told Nation’s Restaurant News. “We’re investing in people and brands. It just takes a long time to do that. When you do, when you can think for the long-term like we do, it allows us to do some things that maybe some other people can’t.” With that said, there’s no one winning formula to which brands Roark seeks out. “We’ve always invested in large-, small- and medium-sized brands,” Aronson added. “But we’re thankful and lucky that investors have grown to be more excited about our approach over the years.”
Aronson, for his part, is quick to credit the company’s success to plain old-fashioned hard work. “We’re just not big believers in shortcuts,” he told QSR. “It takes time to build a really good company, to make it sustainable, and make the growth something that’s long term.”
Roark Capital owns at least three of the 25 biggest quick-service restaurant chains—it acquired a majority stake in Arby’s in the early 2010s — and oversees a 16-brand dining empire with some $11 billion in systemwide sales in 2014 with nearly 12,100 units employing some 300,000 people. There’s also Green Burrito and Red Burrito, which cobrand with some Carl’s Jr. and Hardee’s, while Roark also franchises Seattle’s Best Coffee internationally. Its two full-service restaurant chains are Il Fornaio and Miller’s Ale House. Roark also owns nearly a dozen non-eatery franchise businesses.
Neal Aronson and Driven Brands
Neal became a member of the board of directors at Driven Brands in December 2020. He had previously served as a member of the board of managers of Driven Investor and serves as chairman of the board of directors at Driven Brands. Prior to founding Roark, Aronson was Co-Founder and Chief Financial Officer for U.S. Franchise Systems, Inc. (USFS), a franchisor of hotel chains. Before that, he was a private equity professional at Rosecliff (a successor company to Acadia Partners), Odyssey Partners, and Acadia Partners (now Oak Hill).
Neal Aronson, Roark Capital, and Political Controversy
There have been major problems with Roark’s brand Massage Envy recently. More than 100 arbitration actions had piled up against Massage Envy in the year following September 2021. From franchisees who claim an impending doubling of fees for the national ad fund. Forced purchases of more expensive massage oils that benefit only the franchisor, and increased fees for apps and other technology.
Some interviewed franchisees said that around 2015-16, they were seeing around $1 million in average unit volume yearly. They projected to see around $1.3 – $1.5 million in a couple of years. However, that number has now dropped to around $900,000 with around 100 locations leaving the system since then. The EBITDA also dropped from around 20 percent in 2016 to 8 to 9 percent now. Shortly after the franchisees’ complaints were made public in 2021, the company agreed to settle. And also had a change in upper management.
Resolution
On December 31, 2020, Aronson, donated $5,600 to U.S. Senator David Perdue of Georgia. Aronson’s contribution came after Perdue had spent almost two months spreading the baseless conspiracy of a stolen presidential election. Senator Perdue was one of the first members of Congress to falsely claim that the Presidential Election was fraudulent. Despite having no evidence of election fraud. On November 9, the day after the Associated Press and other news organizations declared Joe Biden the winner, Perdue, and fellow Georgia Senator Kelly Loeffler, issued a joint statement calling for the Georgia Secretary of State to resign. Perdue and Loeffler wanted the Secretary of State to overturn Biden’s lead of 11,000 votes in Georgia.
Aronson and Roark Capital have kept silent on the matter, even as other private equity firms have taken a stand against the law that will undermine democratic values and make it harder for underrepresented voters to have a say in the working of their state.
In 2018, the owner of 10 Buffalo Wild Wings restaurants in Ohio. And Arizona agreed to pay $1.55 million to settle a lawsuit. Covering over 1,200 workers for alleged minimum wage and overtime violations from 2014 to April 2018. The lawsuit alleged that servers and bartenders were required to work off the clock. And that they were paid less than minimum wage because they were “tipped” workers. Even though they spent a significant amount of their time doing non-tip-producing task
