Sibling Duo Pay Price to Grow DDO in Texas

Mark Peterson and Krystal Burge, the brother-and-sister pair behind big Taco Bell franchisee Desert de Oro Foods, share plenty of sibling banter. President Peterson, for example, insists on calling the company’s CFO his “much older sister,” even though they’re apart by only 15 months.

But things got serious for the Arizona- and Utah-based DDO when they considered the opportunity to buy R&L Foods, which owned 35 Taco Bell, KFC and Taco Bell/KFC co-branded restaurants in and around San Antonio, Texas. The sobering reality? “Mark and Krystal paid an extremely high multiple of the target company’s existing cash flow” to do the deal, says their investment banker, Chris Kelleher of Auspex Capital, “but they are thoroughly convinced” the price will ultimately prove to be a bargain.

It was hard enough to justify the purchase price to themselves, but tougher still to convince their lenders to swallow it, too, plus back the aggressive store development plan that Peterson and Burge believe is crucial to the deal.

Although San Antonio is the seventh largest city in the United States, in 2014 the city had only 14 freestanding Taco Bell restaurants and there had been no net new units added there in more than a decade, Kelleher says. “This transaction married up one of Taco Bell’s most prolific new store developers with what is likely the brand’s greatest domestic development opportunity.”

You have to be aggressive in today’s market, the brother-and-sister pair believe. “The market is now too efficient and competitive to find that ‘no-brainer’ deal everyone is looking for. To win the best deals you need to work hard to find that hidden value or have the vision to see a perspective that the less insightful bidders missed,” they say. And if it flops or soars? These siblings likely have plenty of practice hogging the credit—or pointing the finger.

Source: “How 12 Savvy Dealmakers Landed Their New Suitors: Sibling duo pay price to grow in Texas”, pages 29-30, Franchise Times, April 2016