The Exchanges

Q Well, there's probably no better way of getting a feel for this than diving into one of these companies, so let's do that with Burger King. And Daniel, maybe the place to start is when you're bringing this approach To really taking over a company and running it. How do you go about finding a business like Burger King to buy?

A We were looking at businesses to buy. This was back in 2009. We're looking at all sorts of different companies, and we found Burger King, one of the regular screening exercises that we do of consumer businesses that are trading below a certain multiple, below a certain total enterprise value, and we saw it. We did a whole bunch of outside-in research on the business, And we developed a thesis basically around the company that looked something like the following. Great business. Great business model. I think we were probably early to have an appreciation of the fully franchised business model and the value of the franchise business model. We felt that it was an iconic brand that had been around 50 plus years. Actually, we spent a lot of time studying the history of the business from the start, from the 19 fifties. And if you went back in time, you'd learn that the business after being founded by Macklemore and Edgerton was subsequently sold several times between the 19 fifties and early 2000. And that resulted in a series of management changes over the years, and what we found interesting was that notwithstanding this frequent changing in ownership and management, the company flourished into the second largest fast food hamburger restaurant chain globally at the time around 12,000 restaurants, 80 plus countries, and to replicate something like that, it just felt like it would be…

AI assessment note: “we found Burger King, one of the regular screening exercises that we do”

Q So before you try to take the business private, how do you go about the depth of work required that gets you comfortable that this is something that you should spend your time going after?

A Many months of intense, in-depth research, studying the industry, studying the history of the company, studying the company, studying its peers, Spending a lot of time visiting restaurants, both of the company and the peers. I remember Alex and I developed relationships with several franchisees. We toured the country and developing relationships with people and just learning and asking questions about how the business is being run and how it could be run better. Detailed benchmarking around the number of restaurants that the brand had. In certain countries compared to what the peers had, understanding those underlying unit economics of how profitable the Burger King restaurants were compared to the peers in certain countries. Ultimately getting comfortable that, I know it sounds cliche, but with any investment, making sure that there is a large enough margin of safety, if you will, the pro forma entry multiple was low enough that even folks like us probably wouldn't mess it up.

AI assessment note: “Many months of intense, in-depth research, studying the industry, studying the history”

Q I want you to have Popeyes coming. This playbook now is so obvious to just rinse and repeat. So where did you step in after that?

A The latest acquisition that we did was a company called Firehouse Subs. This is in the end of 2021. And so that's the fourth leg. We think about that. It's a large category, the subs category, and there are several smaller brands, Firehouse being one of them. That are growing at really, really attractive rates of return. We have an incredible product. The brand stands for something that is incredibly important in the communities in which it operates in terms of giving back. And we see room to grow this business domestically and globally for decades. I think we opened up the first international restaurant. It was under our ownership in Switzerland and We have ambitions to bring that all around the world, and there's an example of a large sub company that has quite a big global presence, and we think that there's plenty of room to have many, many more firehouse subs.

AI assessment note: “The latest acquisition that we did was a company called Firehouse Subs.”

Q How do you think about the type of culture you'd like your portfolio companies to breed?

A Not to sound repetitive, but it's culture that if there's one word I could use, it would really be ownership. People who genuinely care and act like owners of the business that they're running. And so there's this line that sometimes there's a delineation in our organizations. We don't like to think of that being delineation between ownership and management. And like the people who are running the company are the people who own the company. And I think it results in them being more entrepreneurial. It results in them bringing this owner's lens to the business, thinking about what's in the best interest of the company, which is also what's in the best interest of the shareholders, as opposed to thinking, oh, what's in the best interest of the management? In our world, we like those to be blended together, and I think the reason it's compelling, if you look at the history of restaurant brands and Burger King, I'd say we're willing to give people a shot, maybe a little bit earlier than they get a shot elsewhere, And I think that allowed us over the history of the company to attract very talented, very ambitious people who, as Alex mentioned, are frankly the folks who are running the business today.

AI assessment note: “if there's one word I could use, it would really be ownership.”

Q How do you think about what industries you'd be interested in looking at?

A Maybe a way to answer that is what industries would we not want to look at? We want to own a fundamentally good, but somewhat reasonably easy to understand business, and so you could think about what that knocks out, and ideally a business that has a good moat, a long operating history, that's not likely to be disrupted or disintermediated anytime remotely soon. And ideally, businesses that aren't overly cyclical, so it's not like we're working so hard to run the business better, and we just get the cycle wrong in place for too long. And those are some of the criteria that we look at, and maybe that's why we ended up owning some of these consumer businesses in the past, because they fall into that bucket of somewhat easy to understand, been around for a long time, most likely not going to get disintermediated or disrupted. Try not to overcomplicate things on our end.

AI assessment note: “We want to own a fundamentally good, but somewhat reasonably easy to understand business”

Q So the other aspect of that is now doing this the third time. It sounds like it works beautifully, but there's always bumps in the road. So what were some of the things you learned from going through it, either at Burger King, or then at Tim Hortons, and now at Popeyes, that you got more efficient at over time?

A One of the most important avenues for us is making sure that we buy one of these businesses, or when we own one of these businesses, that we have great partners developing the brand in their home markets, that they're well capitalized, great local partners with incredibly strong unit economics. And naturally, you're not going to have a hundred percent success, or you're going to have bumps along the road. And I think with us, it's always learning from the mistakes that you make along the way with certain partners, making sure you have the right local partner that's well capitalized with the right operating capabilities. Maybe in the early days with certain brands, maybe we went to a country too soon or too quickly, or we picked a partner who had a lot on his or her plate with other businesses or other brands. And I think in any one of those factors can play in. That's when you don't Grow as quickly as you can. It sounds pretty simple, but just making sure that we are delivering a great brand with great unit economics to a partner that is ready to be successful in that market. That's when the magic happens. In the case of India, for instance, we didn't rush in. We jointly developed a localized menu with our partner, I think over the course of a year before we opened our first restaurant. And so Making sure you take all the steps necessary both on the company's side and the franc…

AI assessment note: “In the case of India, for instance, we didn't rush in. We jointly developed”