Burger King: There are buyout barons and then there’s real private equity. Burger King is marking the distinction with its $4 billion sale to the capitalists behind Anheuser-Busch InBev. TPG, Bain and Goldman Sachs relied on financial engineering during their eight-year stewardship. But the fast-food chain’s new owners have a grander plan: do for burgers what they did for beer.
That’s just as well. Replicating the terms of the 2002 Burger King leveraged buyout would have been all but impossible. At $24 a share, 3G Capital is paying nearly 9 times EBITDA, well above the 5.3 times that TPG and its cohorts paid. 3G also is injecting more than twice as much equity as the previous buyers did.
Generating returns now will require restructuring and expansion. Private equity firms often say they do this, sometimes justifiably. But it’s usually accompanied by clever maneuvers, be it cheap financing or so-called multiple expansion (buy low, sell high), both of which have figured in Burger King’s latest ownership regime. Moreover, buyout barons must return the capital they play with to limited partners, usually within 10 years, though preferably much sooner.
That’s why 3G should have little competition for Burger King. Rivals do have 40 days in which to make competing offers, but 3G has two tough-to-match operational advantages: deep roots in Latin America, where Burger King has room to expand, and extensive experience with iconic consumer goods.
Indeed, 3G’s main backer is Jorge Paulo Lemann, a former professional tennis champion who founded and later sold Banco Garantia, widely viewed as Sao Paulo’s answer to Goldman Sachs. Along with two fellow Garantia partners - hence the three G’s — Lemann has recycled that capital with great success.
3G’s beer experience provides an obvious blueprint for Burger King. Starting with the purchase of Cervejaria Brahma, 3G rolled up breweries in Latin America and created an industry leader in profitability. That allowed for the 2004 merger with Belgium’s Interbrew and the eventual takeover of Anheuser. Sure, 3G has used leverage along the way. But 21 years into the business and they’re still at it. That’s the kind of patient, private capital that Burger King’s latest expensive buyout demands.
