Private Equity Case Study: Burger King
3G Capital's bold strategy of shifting Burger King towards an entirely franchise-based model yielded significant rewards.
In 2009, Burger King was a 55 year-old burger chain and publicly-traded company under intense scrutiny by shareholders. CNN Money called it a “fast food flameout” as Burger King was experiencing “significant traffic decline” in stores while competitors like McDonald’s were actually seeing an uptick in customer visits due to savings-conscious consumers during the Great Recession. Additionally, Burger King was experiencing declining earnings due to cost pressure and volatile food prices (beef prices increased 13% in 2008).
Private equity firm 3G Capital saw an opportunity to revitalize Burger King by pivoting to a franchise-based model that allowed the company to reduce operational costs and variability in earnings while focusing its efforts on brand building, new menu offerings, and updating store technology.
3G acquired Burger King for $3.3 billion in 2010 ($4 billion inclusive of debt). By 2012, Burger King’s earnings had increased 49%, and 3G sold a stake in the company to Justice Holdings at an $8 billion valuation. Two years later Burger King would merge with Tim Hortons to form Restaurant Brands International. By 2017, it was reported that 3G Capital and Burger King’s other shareholders had made over $14 billion from the turnaround that began in 2010.
This 2,000+ word case study outlines the value creation efforts used by 3G Capital and its portfolio operations team to turn around Burger King between 2010-2012. Today, it’s one of the hallmark examples of a private equity turnaround in the quick-service restaurant industry.
Management Overhaul
One of the first steps taken by 3G Capital post-acquisition was to install a new management team. Bernardo Hees, a partner at 3G, was named CEO of Burger King in September 2010. Hees, who had successfully led the turnaround of America Latina Logistica, one of Brazil's largest railroad and logistics companies, was known for cost-cutting and improving operations. Another partner at 3G, Daniel Schwartz, was named CFO of Burger King that same year. Schwartz, who was just 29 years-old at the time, was known as a fast-rising talent in finance, and he would eventually take over from Hees as CEO of Burger King in 2013.
