Investment Opportunity
During the 1980s, fast food restaurants in the U.S. were acquired at relatively high multiples of 7 to 10 times EBITDA (earnings before interest, taxes, depreciation and amortization) and burdened with high levels of debt. In the early 1990’s, these properties came onto the market at substantially lower prices providing opportunities for investors to gain significant returns at modest risk levels. The stable earnings of these fast food restaurants, coupled with low acquisition prices, portended superior returns at modest risk levels.

Business Description
Three Wendy’s franchisees in Ventura County and San Diego, California, and Knoxville, Tennessee, were purchased in the early 1990’s to take advantage of the attractive opportunities in the fast food restaurant business. Southern California Food Services Holding Corporation was the second-largest franchisee of Wendy’s International, Inc., with 65 restaurants that generated over $60 million in revenues and $6 million in EBITDA by 1995.

Transaction Description
In April 1991, SCFSHC acquired the 11 Los Angeles-area Wendy’s restaurants from the Fast Food Division of American Restaurants Corporation in conjunction with a former Cineplex-Odeon executive. Approximately $3 million was contributed in the form of common equity and subordinated debt to close the acquisition. A term loan with Sanwa Business Credit Corporation was also arranged.

In April 1992, SCFSHC acquired the 19 Knoxville-area Wendy’s restaurants from Citicorp North America, Inc. in conjunction with a very experienced multi-unit Wendy’s operator. Approximately $3 million in the form of common equity and subordinated debt were contributed. A $3.25 million term loan with AT&T Commercial Finance Corporation was also arranged.

In May 1993, SCFSHC acquired 25 San Diego-area Wendy’s restaurants from GE Capital in conjunction with an experienced multi-unit Wendy’s operator. Approximately $5 million in the form of common equity and subordinated debt were contributed.