Diageo announced this morning that it has finally agreed the sale of Burger King to a private equity consortium backing the fast-food firm’s management for $2.26bn (£1.43bn) in cash.
The transaction equals roughly 1x Burger King’s 2001 book value excluding goodwill, or 0.71x after goodwill, and an enterprise value over estimated sales for 2002 of 2.3x.
The consortium behind the purchase includes Texas Pacific Group, one of the biggest backers of Punch Taverns, plus Bain Capital, the owner of the Domino’s Pizza chain, and Goldman Sachs Capital Partners. Burger King’s chairman, John Dasburg, and his management team will stay on at the chain.
Burger King is the second-biggest in the United States after McDonald’s and has more than 670 franchised outlets in the UK, with three main franchise holders, Gowrings, Compass and Georgica.
Part of the purchase price will depend on Burger King satisfying certain performance targets in the financial year ended June 30, 2002, Diageo said in a statement.
Its group finance director, Nick Rose, said a “substantial proportion” of the proceeds would be returned to shareholders, but Diageo’s priority was to grow its premium drinks and ensure the company’s capital structure was efficient. Observers believe the group may follow peers such as Allied Domecq and Foster’s and invest in wine assets
The deal is expected to be closed in the last quarter of this year. Texas Pacific beat off a private equity firm Thomas H. Lee and Triarc Companies, which owns the Arby’s restaurant chain in the United States. The winning consortium has been a leading contender for the chain since Diageo officially put Burger King up for sale in March.
Burger King was founded in 1954 and bought by Grand Met in 1989. Grand Met merged with Guinness to form Diageo in Burger King recorded profits before exceptional items and amortisation of goodwill of $257m in the year to the end of June 2001.
