🍟 3/27/2023 – Roark Capital – The Quiet Empire
Roark Capital – The Quiet Empire
If you’re reading this newsletter and live in America, there’s a 99% chance that you’ve interacted with a Roark Capital owned business.
In addition to all the franchises in the image above, they own or have majority ownership stakes in plenty of other franchises inside and outside of the restaurant space:
- Massage Envy
- Anytime Fitness
- Primrose Schools
- Basecamp Fitness
- Take 5 Oil Change
- Seattle’s Best Coffee
- Nothing Bundt Cakes
That isn’t even a comprehensive list – if I included every single brand it would just look plain ridiculous.
The Atlanta-based private equity firm stays entirely behind the scenes, as they prefer to let their brands run autonomously and be the ones to soak up the spotlight.
But make no mistake, Roark Capital is a behemoth:
- $35 billion in assets under management
- Have acquired 105 franchise / multi location brands
- Generate approximately $70 billion in system revenues
Given their quiet nature, I was curious to dig in and learn more about this organization. Below is what I discovered, including the origin story, a timeline of their biggest deals, and why this company is different from most private equity firms…
Roark Capital Origins
Neal Aronson – pictured right
Roark Capital was founded by Neal Aronson a graduate of Lehigh University (shoutout Patriot League 😤) who started his career in New York as an investment banker.
In 1995, he co-founded U.S. Franchise Systems, an Atlanta-based hotel franchisor that started with one brand and 22 hotels in nine states. He and his co-founder would go on to sell the company in 2000 for roughly $100 million, after they grew to 3 brands and 500 hotels.
It was then when an old mentor of his from his investment banking days nudged him into starting Roark Capital.
Aaronson’s inspiration from the name comes from the fictional novel The Fountainhead, whose main character is Howard Roark.
“He is my all-time favorite character in any book,” Aronson says. “He has conviction, passion, unbelievable honesty, openness, and he’s loyal and trustworthy. He refuses to follow fads, trends, or popularity. He follows what he believes.”
Aronson even based the firm’s 12 core values around the traits of Howard Roark, including commitment, integrity, collaboration, and accountability. All Roark employees receive a card with these values imprinted on it.
Roark’s Growth – Portfolio and as a Company
Given how many brands Roark Capital owns directly or has major ownership in, this won’t be a full breakdown, but I’ll try to cover the highlights.
The first Roark Capital acquisition was Carvel in 2001 for $26 million. Given Aronson’s experience with hospitality franchises, it felt like a comfortable first acquisition.
It’s worth noting that Roark employees have been quoted saying that at the time though, Carvel was in turmoil, particularly the franchisor <> franchisee relationships.
Regardless, this acquisition served as the basis of FOCUS Brands, which today operates as a majority owned Roark affiliate. FOCUS is home to some of the more famous franchises under Roark’s broad umbrella, including Jamba, Auntie Anne’s, and Cinnabon.
Effectively a platform within the larger platform that is Roark Capital, FOCUS brands isn’t even the biggest holdings of Roark.
Inspire Brands, another majority owned affiliate of Roark, formed in 2018 when Arby’s (already owned by Roark) acquired Buffalo Wild Wings for $2.9 billion. Their vision has been to create a suite of brands that span multiple occasions, up and down the spectrum, and to capture more visits from the same customer.
Said differently, Roark Capital wants their portfolio brands to attract the same customers across varying parts of the day, price points, and interest levels over time.
This is why it includes brands like Dunkin’ (morning coffee), Jimmy Johns (lunch), and then Sonic, Buffalo Wild Wings, Arby’s (lunch + dinner at different price points), and Baskin Robbins (desert).
Outside of Inspire Brands and FOCUS Brands, they also have invested in platforms like Driven Brands, a leading automotive franchise holding company, and Self Esteem Brands, the owner of Anytime Fitness, The Bar Method, and more.
They also have 1 off investments in OrangeTheory, Massage Envy, and Culver’s (Roark is the only outside investment Culver’s has taken). Oh and by the way, the original transaction of Buffalo Wild Wings also included Hardee’s and Carl’s JR operator, CKE Restaurants.
All in all, as of 2021, Roark Capital has raised over $18 billion in equity capital, and now has a team of over 100 employees.
But Neal Aronson remains as the sole CEO and Managing partner of the firm.
Why They’re Unique
Roark Capital does a few major things differently than most private equity firms, but before getting to that, let’s just recognize how big this company is.
Inspire Brands and FOCUS Brands both would command billion dollar valuations on their own, and that just makes up part of Roark Capital. There’ simply no meme format that could encompass all of Roark Capital.
Okay back to how they’re different. I’m not a private equity expert by any means, but there’s two key aspects of Roark that don’t seem common in private equity.
1. Deal Variety
Many private equity firms specialize in certain transactions, opting to only invest in companies that are at a specific stage of growth, and usually in a industry.
Not only does Roark invest across all industries, but they run the gambit as far as the type of transaction.
They took Dunkin’ private in a $11.3 billion deal in the Fall of 2020, the largest franchise transaction ever.
A few months later in early 2021, they took Driven Brands, the owner of automotive franchises like MAACO, Meineke, and more – public via an IPO at a valuation of $700 million. They still retain ~70% ownership.
Then at the end of 2021 they acquired Mathnasium, the education franchise, in a 9-figure transaction that was fully done in the private markets.
Roark will invest in any industry, at any stage. They know franchises, and that’s the unifying force behind all these investments.
2. Time Horizons
Many PE funds have a 3-5 year time horizon on their investments, with the goal of reselling the brand upstream to a bigger fund after cutting down costs, making the business more efficient, and ultimately increasing profitability.
Roark however, at one point 2014, 13 years into its existence, had only ever sold 3 companies.
At that point, Aronson said “we’re just not big believers in shortcuts. It takes time to build a really good company, to make it sustainable, and make the growth something that’s long term.”
Now they do have an obligation to their investors to provide liquidity, and so they have made some divestitures since 2014. One of the most notable being when they took Wingstop public in 2015, they sold millions of shares to the public, the first divestiture of a restaurant company Roark ever made.
They have made other divestments since, but Roark is in the business of growing their investments as much as possible, and maintaining long time horizons to align incentives with their partner franchisors.
It will be interesting to see if Roark Capital ever files an IPO itself one day. An announcement like that would have investment bankers salivating to bring this company to public shareholders.
But in the meantime, if you keep tabs on them, you will certainly see more acquisitions from them this year, and minimal (if any) sales of their brands.
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