The deal is a "very good fit," the company says.
Huddle House bought Perkins Restaurant & Bakery out of bankruptcy, the family-dining chain announced September 12. Terms of the deal were not disclosed, but bankruptcy court documents show Huddle House agreed to a purchase price of $51.5 million for the beleaguered brand, which shuttered 32 restaurants and filed for Chapter 11 protection in August.
The deal is expected to close October 21. Perkins has 342 restaurants in 32 states and Canada. About 100 are company run.
Huddle House said its executive team will manage Perkins out of its Atlanta headquarters and run each of the concepts as separate brands, yet leverage resources and proven strategies to build efficiencies. There are no plans to convert any Perkins to Huddle House restaurants, or vice versa.
“Strategically, this is a very good fit. Both Huddle House and Perkins are breakfast-first concepts and we pride ourselves on our ability to bring families together through remarkable food and homestyle meals,” said Huddle House’s CEO Michael Abt, who now be the top executive for both brands, in a statement.
Why Huddle House keeps getting better with age
“The current leadership team at Perkins has done a tremendous job revitalizing the Perkins concept over the past year, and we believe that we can further utilize Huddle House’s existing platforms and financial backing to strengthen the growth of the Perkins brand,” he added.
Abt said the deal came about “by careful design and calculation, as the brands fit well together serving complementary markets but supported by similar resources.”
Upon close, the company will operate more than 700 locations and $800 million in sales.
Court documents revealed that Perkins’ smaller chain, Marie Callender’s, will be broken up. New Jersey-based Fairfield Gourmet Food Corp. agreed to acquire the chain’s bakery business (Foxtail Foods) for $18.7 million. The remaining part of Marie Callender’s (roughly 30 stores and franchise rights for an additional 20 units) is being sold for $1.75 million to Marie Callender’s Inc., a new company. The buyer is a vehicle owned by restaurant management company Elite Restaurant Group.
When Perkins filed for bankruptcy, the company closed 11 Perkins and 21 Marie Callender’s. The Memphis, Tennessee-based company owed more than $114 million to senior lenders.
Perkins said its bankruptcy was caused by “the compounding impact of negative Perkins and Marie Callender’s sales in 2017 and 2018 on Foxtail—a captive and material vendor to the restaurants.” Foxtail Foods, also owned by Perkins, is a bakery goods manufacturing business that supplies Perkins restaurants and sells to various third-party customers.
Other issues cited were, “an elevated commodity environment; statutory increases in labor costs; [and] an increasingly tight labor market.” Additionally, Foxtail took a hit following the loss of a large customer in 2017.
As Abt alluded to, Perkins has made progress in the past year. The company didn’t provide exact details in its filing, but said it witnessed “dramatic same-store sales increases” since late 2018 as its launched several management initiatives, including a revised marketing and media strategy, and the introduction of an off-premises program.
This was the second time Perkins filed for bankruptcy in the past decade. The chain declared Chapter 11 in June 2011 after securing key creditors’ support for a plan to cut the company’s $440 million debt. It reported assets of $290 million in its bankruptcy petition at the time.
The company was formed in 2006. Affiliates of private-equity firm Castle Harlan Inc. combined Perkins Restaurants, founded in 1958, and Marie Callender’s, which was created in 1948.
It also attempted a sale in 2017, per Debtwire. Two years prior, Perkins’ considered refranchising underperforming corporate locations—a strategy Steak ‘n Shake is currently undertaking as it hopes to move to a single-unit operator model, not unlike the one Chick-fil-A built its quick-service empire on.
The April before its 2011 bankruptcy filing, Perkins owned and operated 150 restaurants in 13 states and 314 franchised-run units in 31 states and throughout Canada. It owned and operated 85 Marie Callender’s restaurants in nine U.S. states and had 37 franchises in the U.S. and Mexico. Before the bankruptcy, the company said, it launched a store-reduction program to shutter 65 of its company-owned locations—a move that would reduce its workforce by about 2,500 people.
ConAgra Foods, Inc., also purchased the Marie Callender's brand trademarks from Marie Callender Pie Shops, Inc., for $57.5 million in June 2011.
Huddle House has been in the midst of a turnaround of its own. The brand was sold by private-equity firm Sentinel Capital Partners in February 2018 to Elysium Management for an undisclosed amount. Sentinel is the firm that bought Captain D’s and sold Checkers/Rally’s for $525 million. Elysium is an investment firm involved in managing the assets of Leon Black, the co-founder of private-equity firm Apollo Global Management. Apollo purchased fast-casual Mexican chain Qdoba in December from Jack in the Box for about $305 million in cash.
Huddle House retracted its total unit count by 44 units to 349 locations, generating more than $240 million in annual systemwide sales, in the six years prior to the deal. However, the brand’s average-unit volume increased 14 percent during that run.
To kick off 2019, Huddle House debuted a new store footprint, providing an option for a smaller, 2,000-square-foot building with fewer seats. This continued the company’s Evolution design that has helped raise AUVs in recent years. The new footprint reduces development costs by an estimated $150,000.
The brand’s growth strategy lately has pushed in the corporate direction. Over the next five years, it plans to open 12 new company restaurants annually to amplify its presence in communities nationwide. Additionally, it expected to bring 10 franchise stores to market in 2019.
In 2018, Huddle House opened 11 restaurants and signed an additional 25 franchise agreements across eight states. And the top half of its Evolution restaurants reported AUVs above $1 million.
This after posting it most impressive growth spurt in 15 years in fiscal 2017, signing 36 new franchise agreements to open new locations across the country, and entered new markets across 14 states.
The chain also began a systemwide rollout of e-Restaurant last year, a data-based back-office system that helps franchise partners with food cost and labor management. The brand launched a new mobile-responsible consumer-facing website and implemented an aggressive digital and social medial advertising effort.