Greg Flynn, Flynn Restaurant Group, bought 1,000-plus restaurants from NPC.
Who should get credit for Flynn Restaurant Group’s 1,131-store purchase from the bankrupt NPC International? “The entire Flynn team, although I draaaagged this one across the finish line myself,” said founder, Chairman and CEO Greg Flynn after the deal closed last March.
The firm added 937 Pizza Hut and 194 Wendy’s restaurants. It now owns and operates more than 2,300 restaurants generating more than $3.5 billion in annual sales—and Flynn gestured upward when asked this March for his updated sales forecast. “We are meaningfully outperforming in both systems,” he said, declining to name numbers. “Quite meaningfully.”
Flynn’s subsidiaries include the largest Applebee’s franchisee, the largest Arby’s franchisee, the second largest Panera Bread franchisee and the third largest Taco Bell franchisee. The newcomers are the largest Pizza Hut franchisee and the fifth largest Wendy’s franchisee.
Flynn Restaurant Group is No. 1 on the Franchise Times Restaurant 200, the ranking of largest U.S. restaurant franchisees. NPC, formerly No. 2, no longer exists after wracking up more than $900 million in debt and filing for Chapter 11 in July 2020. Flynn is also the No. 3 restaurant operator in the United States, behind Starbucks and Chipotle, “and I’m planning to close in on Chipotle,” Flynn said.
Rescuing NPC’s assets and people was “very much” meaningful to him. “From the beginning, we believed it was in the interest of all stakeholders that we kept the businesses together as much as possible. The court agreed,” Flynn said.
Greg Flynn at the Golden Gate Bridge near Flynn Group's headquarters in San Francisco.
“The people are the most valuable part of both businesses,” the Wendy’s and the Pizza Hut operations. “What we’ve found is there are very, very good people there,” Flynn said, both in decades of experience and operational performance.
“We’ve found this over and over again, if you give people an opportunity to perform with a little more freedom and autonomy, and you paint a picture of a better outcome, and you equip them with resources they need to accomplish them, and you align your interests with profit-sharing,” he said.
“We believe we are seeing now just better performance out of the same people, better performance than anyone ever expected of them or asked of them or equipped them to deliver.”
Bank of America is Flynn’s investment banker.
The Cypress Group represented NPC in the sale. “It was quite an event, especially given the circumstances and then COVID and all the dynamics going on with the brands. It was a pretty fascinating deal,” said Dean Zuccarello, managing partner of the investment banking firm. “We got the gig largely through Monarch,” the largest purchaser of NPC’s debt.
“NPC was already in some level of financial difficulty given their capital structure. They had made a bunch of acquisitions, and were already over-levered,” he said. Greenhill & Co. and AlixPartners were hired to restructure, but NPC’s debt “was bought in the marketplace at a deep discount,” led by Monarch Alternative Capital. “Monarch became the 600-pound gorilla.”
Zuccarello described a tense scene. “The attempts at restructuring were stalling. The lenders were putting pressure on the company to consider other options. And that’s when Monarch, leading the creditors’ committee, told NPC they wanted Cypress to be hired,” he said.
“It was definitely in our sweet spot. We’d done all the Wendy’s refranchising, and we had experience in the past doing Pizza Hut deals,” Zuccarello said. “The size itself wasn’t alarming; it was just whenever you’re dealing with a situation like this, you have so many cooks in the kitchen. The challenging part was working through that.”
The original plan was to sell all 400 of NPC’s Wendy’s restaurants to Flynn, but Wendy’s corporate balked. That sent Cypress in search of other buyers, ultimately identifying five existing franchisees. Delight Restaurant Group was one of those.
Operated by brothers Andrew and Rich Krumholz, Delight bought 54 Wendy’s in North Carolina from NPC for $60 million, and another 44 corporate-owned Wendy’s in New York for the same amount. They went from 60 restaurants to 155 plus, helping to provide an “elegant solution” for NPC, their nomination said.
What they learned from the deals? “Reputation matters,” the brothers stated on the form, adding they “want to be the go-to franchisee that franchisors trust.” Andrew Krumholz said in an interview the effort “humbles us every day” as well. “The brand wants franchisees that are going to run great restaurants and invest in the restaurant assets, and we try to do a really good job of that, and keeping our heads down.”
In the portfolio bought from NPC, same-store-sales are up 9 percent for the year, “which is a huge change to the trend that they were on,” he said.
Flynn said one of the deal’s attractions “was how difficult it was going to be, because that’s a barrier of entry. I don’t think there were many other potential buyers that could get through the process. I have a high tolerance for pain.”
“In bankruptcy, you really need to have ready money. We put up an $80 million non-refundable deposit early in the process. Then you have to have the sophistication and advisers to get through a bankruptcy.”
What kind of pain? “You just can’t believe how many lawyers are involved, and how much money—I won’t say it’s wasted, but you sit there on calls and there are 30 lawyers on the call. My god,” he said. “Then the hardest part is, you have to be approved by the franchisors,” he said. “It made this a thrilling and challenging deal.”
Yum Brands owns Taco Bell and Pizza Hut, so gaining their approval was relatively easy because of Flynn’s successful Taco Bell operation. By contrast, “we had never been in business with Wendy’s before. We tried to educate them as best we could on our track record, but like many things in life, they will judge us over time by what we do, not what we say,” Flynn said.
“They brought a healthy level of skepticism to the conversation, in part because of the context. The last guys, NPC, made a lot of promises, too. We both tried to find a solution that made everyone happy.”
This year, the focus is operating and building. “What we always focus on is just running our restaurants well. That’s the absolute key to the business,” Flynn said. “We also have made serious commitments around the assets we acquired, and we will make sure we fulfill those commitments.” The firm is spending “tens of millions” of dollars on remodeling, relocating and building.
Flynn is not done yet. “We’re open for business, so listen, if you’re out there and you want to sell, here we are. Let us know.”