Atlanta investment firm scoops up Culver’s stock

October 14, 2017 GMT

Culver’s — one of the Madison area’s most successful, family-owned restaurant chains — is taking on its first significant outside investors.

Culver Franchising System, based in Prairie du Sac, has sold a minority share to Roark Capital Group, an Atlanta private-equity firm.

The transaction took effect Friday. Terms of the deal and the percentage sold to Roark were not disclosed.

But co-founder and board chairman Craig Culver said the Culver family, which owned more than 99 percent of the shares until now, will remain the majority owner.

“Our intentions are to remain a family-owned business for a long, long time,” he said.

And there won’t be any shakeup in the Culver’s menu. “Our menu will be the same, and the cooked-to-order concept, as well. That ButterBurger doesn’t hit the grill until you order it and that’s not going to change,” Joseph Koss, CEO and president, said.

Founded in 1984 by Craig and Lea Culver, Culver’s has 638 restaurants in 24 states and five more will open by the end of this year, Culver said. The company — known for its ButterBurgers and frozen custard — had $1.3 billion in annual revenue in 2016.

Roark Capital Group specializes in franchises in the food service, retail and consumer services industries. Its holdings in the restaurant industry include investments in Arby’s, Corner Bakery, Jimmy John’s, Wingstop and FOCUS Brands, which owns chains such as Cinnabon and Schlotzsky’s.

Other Roark portfolio companies include Anytime Fitness, Orangetheory Fitness, Pet Supermarket and Meineke car care.

“We have long admired the Culver’s brand and its commitment to culture, quality and service,” said Erik Morris, senior managing director at Roark. “We are excited to be partnering with the Culver family and management team, and look forward to supporting the brand’s continued success.”

Culver said he first met Roark founder Neal Aronson about 15 years ago. “We were a small company at that time but he was interested in us back then. He has stuck by and watched us grow over the years,” Culver said. In fact, “a lot of other private-equity companies” also have had their eye on Culver’s “for a while,” he said.

Culver, 67, said discussions about a succession plan for the company started about 10 years ago and popped up again about two years ago but never moved forward. Then about a year ago, the board decided to take a more serious look.

Five private-equity companies put together proposals, and Roark’s “stood out,” Culver said.

“We thought they would be a great partner of ours,” he said, citing the firm’s experience with restaurants and franchises. He also said he thought the two companies had similar attitudes.

“I’m talking about heart, about being a good person, about being able to say ‘please’ and ‘thank you’ and mean it. Being genuine ... treating each other well. It’s about passion for what we do and doing it with heart,” said Culver.

He declined to name the other companies that submitted proposals.

Private-equity investments can be a good way for a company to let owners diversify their assets, making their exposure to the company’s risks more palatable, UW-Madison School of Business associate professor Oliver Levine said.

Speaking in general terms and not specifically referring to Culver’s, Levine said, “Overall, in a general sense, this type of outside financing is very likely good for the company because it allows the company’s investment decisions and the family’s liquidity needs to be less interconnected,” he said.

“The outside private-equity investors may also allow for easier access to capital in the future if it becomes necessary, and could provide financial expertise and monitoring that adds value to the company,” Levine said.

He said sometimesbringing in outside, minority investors can create conflicts on a board — for example, if certain uses of funds benefit the family owners but not the company as a whole, but that probably would not happen in this situation.

“Given that the family is still the majority owner, the management still has strong incentive to maximize the company’s value, so this is unlikely to be a significant issue,” Levine said.

Culver’s is No. 8 on Forbes’ list of the best fast-food franchises to own, and No. 20 on Entrepreneur’s 2017 Franchise 500 Ranking.

Culver’s has grown from 100 restaurants in 2000 to more than 600 today. It added 46 locations in 2016 and is on track to have opened 39 restaurants this year.

Craig Culver said, though, the equity infusion is not intended to accelerate the company’s growth. “Not that we won’t open 50, or maybe even 60 restaurants a year,” he added.

He said the funding will provide some liquidity to the major shareholders: Craig; Lea; Craig’s brother, Curt; and his sister, Georgia Littlepage — but beyond that, it will bring in new blood.

“They’re coming in without blinders. When you’ve been doing something for a long period of time ... it’s good to bring in an outside perspective,” Culver said.

“We’re looking at what they can bring to the table for us. The world is a changing place. ... They have great knowledge of our industry and great knowledge of franchising,” he said.

Roark will provide two members for Culver’s board of directors.

In addition to the four family members, there are three other outside directors, who, together, cast a single vote on issues.

Culver said the board considered the possibility of staging a public stock offering but decided it would be “a distraction to us.”

McDonald’s shares are traded on the New York Stock Exchange. Burger King is part of Canada-based Restaurant Brands International, of which 51 percent is owned by 3G Capital of Brazil and the rest is publicly traded. Panera Bread stock had been publicly traded until it was sold this year to German conglomerate JAB, which is privately owned.

Culver said all of those chains and more are Culver’s competitors. “We’re kind of a ‘tweener’ — not pure fast food or casual dining.”

Will Culver’s eventually be dishing up frozen custard in all 50 states? “I don’t know if I’ll ever see that in my lifetime, but would I like to see that? Heck, yes,” Culver said.

About 25,000 people work for Culver’s. Within the company’s administration and in the eight corporate-owned Culver’s restaurants and one Blue Spoon restaurant (in Prairie du Sac), there are about 400 employees.