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more. Hello

0:55

I'm Ted Sides and this

0:57

is Capital Allocators. This

0:59

show is an open exploration of

1:02

the people and process behind Capital

1:04

Allocation. Through conversations with

1:06

leaders in the money game, we learn

1:08

how these holders of the keys to

1:10

the kingdom allocate their time

1:12

and their capital. You

1:14

can join our mailing list

1:17

and access premium content at

1:19

capitalallocators.com. All

1:21

opinions expressed by Ted and podcast guests

1:24

are solely their own opinions and do

1:26

not reflect the opinion of Capital Allocators

1:28

or their firms. This podcast is for

1:30

informational purposes only and should not be

1:32

relied upon as a basis for investment

1:34

decisions. Clients of Capital Allocators or podcast

1:36

guests may maintain positions and securities discussed

1:38

on this podcast. 3G

1:41

Capital's buyout of Burger King may

1:43

be the most successful private equity

1:45

deal you've never heard about. Over

1:48

the last 14 years, where the length of

1:51

a typical private equity fund, 3G

1:53

turned a $1 billion investment into

1:55

$28 billion in value. The

1:59

annual dividends from the investment accruing

2:01

to 3G today are

2:06

around 70% of its invested capital. The

2:11

deal is one of the highest earning buyouts

2:13

ever. 3G is an organization with a

2:15

storied history. Founded by

2:18

Jorge Paolo Lamon, Carlos Alberto

2:20

Sicupira, and Marcel Harmon Teles,

2:22

the group created an owner-operated model of investment.

2:25

They rose to prominence through building the largest

2:27

beer company in the world, initially

2:29

buying local brewer Brahma in 1989, expanding

2:33

it and merging with a competitor to become

2:35

Ambev in 1999, merging

2:38

with Eterbrew to become Imbev in

2:40

2004, and taking

2:42

over Anheuser-Busch in 2008 to become AB Imbev.

2:48

Twenty years ago, Alex Behring, a

2:50

young star on their team, moved

2:52

to the U.S. to form 3G Capital

2:55

and take the approach abroad. Burger

2:58

King was the second largest hamburger fast

3:00

food chain after McDonald's in 2010, when

3:03

3G took it private. What

3:06

it accomplished since then has been

3:08

extraordinary. My guests

3:10

on today's show to discuss 3G and

3:12

the deal are Alex

3:14

Behring and Daniel Schwartz, co-managing

3:16

partners of 3G Capital. Our

3:19

conversation covers the history of 3G, Alex's

3:23

journey to form 3G Capital, and

3:25

the 3G Playbook. We

3:28

then dive into the deal, covering the

3:30

sourcing and deal dynamics, improving

3:32

operations, growing the business, taking

3:34

the company public unexpectedly, and

3:37

reloading to buy Tim Hooten's Popeyes

3:40

and Firehouse Zos. Today's

3:43

Burger King is part of Restaurant Brands

3:45

International, a public company with a ticker

3:47

QSR, a

3:50

$32 billion market cap, and

3:52

$50 billion enterprise value. This

3:55

classic deal will widen your aperture on

3:57

what's possible with the long-term compounds of the

3:59

market. holding period and operational.

4:04

Before we get going, it's early May.

4:07

Time for April showers to turn to

4:09

May flowers for the NBA and NHL

4:11

playoffs to kick into high gear, for

4:14

colleges to head for summer vacation, and

4:17

for gatherings of investment professionals at

4:19

the Berkshire Hathaway annual meeting in

4:21

Omaha, followed by the Milken Global

4:24

Institute Conference in California. If

4:27

you made it to Omaha this

4:29

year, you're likely buzzing with excitement

4:31

from the conversations, friendships, and warms

4:33

continued wit and wisdom. If

4:36

you're headed to Los Angeles for

4:38

Milken, you're likely buzzing with anticipation

4:40

for the discussions you'll hear, people

4:42

you'll see, and festivities you'll attend.

4:45

So whether you're on your way to

4:48

Hollywood, or like most, experiencing a touch

4:50

of longing, what better way

4:52

to taste greatness than listening to this

4:54

week's show? Maybe it's

4:56

a coincidence, just maybe, that

4:59

this week's guest, 3G Capital,

5:01

discusses a Berkshire-affiliated investment in

5:03

a leveraged buyout. Not

5:06

a bad way to bridge the gap

5:08

between the two icons that draw many

5:10

across the United States from around the

5:12

world. And if you tell

5:14

your friends, colleagues, and peers about it,

5:16

you can bond without the FOMO that

5:19

might otherwise come. Thanks

5:21

so much for spreading the word. Please

5:24

enjoy my conversation with Alex

5:26

Barring and Daniel Schwartz. Alex,

5:30

Daniel, thanks so much for joining me. It's

5:32

a pleasure. Alex, why don't

5:34

we start with a full

5:36

background of 3G? So

5:39

Ted, we started 20 years

5:41

ago originally as a family

5:43

office of my co-founders, so

5:46

just house capital. And

5:49

what we intended to do

5:51

originally was to replicate this

5:54

approach of being long-term operating

5:56

owners of good businesses, a

5:59

model that was originally developed in

6:01

Brazil and it was

6:03

subsequently companies took it all

6:05

over the world and then

6:08

we wanted to attempt to do that outside

6:10

of Brazil and that was sort of the

6:12

inspiration to set up 3G Capital in

6:14

New York City at the time. And

6:17

how did you come to join the organization?

6:20

So I had joined the

6:22

organization approximately a little less

6:25

than eight years or nine

6:27

years before out of the Harvard Business School.

6:30

I joined out of school in the

6:32

predecessor of Private Equity Farm. They were

6:34

starting in Brazil and

6:37

initially I started as an analyst. I

6:40

evolved to become a partner and

6:42

most of my time there I

6:45

spent running one of the portfolio companies.

6:48

This company there was a result

6:50

of multiple railroad privatizations in Brazil

6:54

and that was a continuation

6:56

of the model that had worked

6:58

so far to the extent that

7:01

the partners were able to acquire good business, one

7:04

of the partners would take a CEO role in

7:06

that business. So I was a

7:08

continuation of that approach and

7:10

I ran the company all the way to

7:12

taking it public and

7:15

early 2004 transitioned

7:17

to a board role and moved

7:19

my young family to New York

7:21

City to start 3G Capital.

7:24

This owner-operator playbook,

7:27

what does that mean? It

7:30

ultimately means that we get

7:32

very, very hands-on in the

7:34

business that

7:36

we attempt to

7:39

chart a path of value

7:41

creation in the business that

7:43

essentially typically has three phases

7:45

to it. It

7:47

does have an initial phase where

7:50

we try to put together

7:52

a team that combines some

7:55

people that understand all ways

7:57

of doing things. Frankly,

8:00

on back end leadership, like

8:02

CEO, and then back

8:04

end position, CFO, purchasing,

8:06

and things like that. And

8:09

we try to combine that with

8:11

people from the business on the

8:13

sales, marketing, front of the house

8:15

jobs. And

8:18

we try to initially make this first

8:20

phase of the business more efficient. That

8:23

frees up cash flow, it frees up

8:25

focus to enhance or

8:28

resume, however the case may

8:30

be, organic growth. And

8:33

hopefully by the time we've established the

8:35

basis of a culture and the

8:37

business is clicking, we are able

8:39

to source inorganic M&A

8:43

growth opportunities. So that

8:45

is the process we typically go

8:47

through. When you think about

8:49

our way of doing business and

8:52

driving efficiencies, 3G has been well known

8:54

for a long time for this concept

8:56

of zero-based budgeting. Would love

8:58

to hear how that actually works when

9:00

you first step into a company. Yeah.

9:03

I mean, Ted, I probably should preface

9:05

this by saying we had this big

9:07

returns in companies like RBI and where

9:10

I think we made 28 times

9:12

the original billion plus capital we

9:14

put in. We had

9:16

a 30% IRR in 14 years and all

9:18

and things like that. And

9:21

in spite of all the publicity the

9:23

zero-based budget gets, the

9:25

portion of that value creation that is

9:27

directly associated with the efficiencies and therefore

9:29

with the zero-based budget is small. I

9:32

mean, frankly, the majority of that growth

9:34

came from again, the organic and the

9:37

inorganic growth. But having said that

9:39

as a means of introduction to your questions,

9:42

the zero-based budgeting process essentially

9:44

attempts to look at the expense

9:47

and the capital expenditure base without

9:50

for a moment abstracting yourself

9:52

from the existing numbers

9:54

and from the peers. As if

9:56

you were starting the business at that moment, what would

9:58

you need? And then of course, you're

10:01

going to have to compare there with what you have,

10:03

what the peers have to make sense of it and

10:05

derive actions and so on. But it's an approach where

10:07

you take an intellectually honest grassroots

10:10

view of cost. It

10:13

brings ownership and accountability to

10:15

cost. It's

10:17

about looking at costs as if you

10:19

are the owners of the business as

10:21

opposed to just the employees who are

10:23

fine spending whatever budget is set for

10:25

them. If you look at the

10:28

history of the deals you've done, you're

10:30

buying what you think is a good business

10:32

to begin with and then you're applying this

10:34

lens of efficiency. What are

10:36

some examples of things that you found that

10:39

you were able to, let's just say, take

10:41

some costs out or drive efficiency that you

10:44

might think from the outside, well, it's a

10:46

good business. It's already run well. I

10:49

definitely characterize it by saying we're trying to

10:51

bring an owner-operator approach

10:53

to all facets of the

10:55

business, be it cost

10:57

or growth. You look at

11:00

Burger King, this is a business that was

11:02

operating at the time we bought it in

11:04

80-plus countries that had a

11:06

50-ish year history of successfully expanding

11:08

into the second largest fast food

11:10

hamburger chain in the world. Yet

11:14

when we looked at it, it wasn't operating

11:16

as profitably as its peers and it wasn't

11:18

growing as fast. Coming

11:20

in, having a new refresh team

11:23

with goals around cost management, goals

11:25

around capital management, goals around growth

11:28

in terms of the number of

11:30

restaurants that this business should be

11:32

opening each year and

11:34

setting these bold, ambitious goals and

11:37

hiring the right people and empowering the

11:39

right people at the company to achieve

11:41

them allowed us to catapult the business

11:44

to that next level. Before

11:46

we dive into Burger King, I'd love

11:48

to hear the broader history of the

11:51

investments you've made at 3G Capital. It's

11:53

quite a different model when people think

11:55

about a private equity organization. the

12:00

approach at 2G Capital with a more traditional

12:03

private equity approach. I think the

12:06

three main points that would make is

12:08

one, we are the largest investors, we

12:10

the partners and affiliated entities are the

12:12

largest investors on these vehicles that do

12:15

the deals. Number one, number

12:17

two, each vehicle is

12:19

deployed entirely in one situation. So

12:22

it's a hundred percent concentration and

12:25

thirdly the intent with this business

12:27

is always to be there

12:29

for the long long term. My

12:32

co-founders have been investors of

12:35

AB & BEV now coming on 35 years.

12:37

We investors in

12:39

RBI for 14 years now

12:42

and counting. In terms

12:44

of your question on the sequencing, we

12:47

had an investment in CSX which

12:49

was a railroad which

12:51

was our first way of getting

12:53

our say tools in the water

12:56

by virtue of not being involved in management

12:58

just at the board. It was

13:00

quite a successful investment for us multiple

13:03

times our money on a declining market in

13:05

the mid-2000s and so there was a

13:08

crisis which by the way favored

13:11

people to focus on efficiencies and

13:13

things that we could have provide

13:15

ideas and that was a good

13:17

investment but also it reinforced

13:20

it to us that the end game

13:22

was to control something and be involved

13:24

in management and that in fact happened

13:26

at Burger King in 2010 and its

13:28

subsequent acquisitions

13:31

of another three brands in the course

13:33

of the last many years. Then

13:35

we had an acquisition of Heinz. The

13:38

Heinz investment was successful, we made

13:41

several times our money on the big private

13:43

Heinz. Then we had the craft

13:45

investment which was merged with

13:47

the Heinz investment but was a totally

13:49

separate vehicle. That investment we

13:51

just basically got our money back wasn't

13:54

a successful investment but it validated a

13:56

fundamental premise of ours which is I

13:59

mean we're not a venture capital. capital for the

14:01

downside case must

14:03

be capital return or

14:05

capital preservation like return of

14:07

sorts and of course, that's

14:10

one of the key things that drives business

14:12

selection, business quality, it

14:14

drives capital structure decisions. For

14:17

example, the next fund was the fund that

14:19

bought Hunter Douglas in which we

14:21

only leverage the business four times. So

14:24

that's part of the approach again that we have and

14:26

then we have of course, the ability to do another

14:28

deal. So that's sort of the sequence. In

14:31

this model where you're putting all

14:33

your resources into a deal at a time,

14:35

what does your team look like to execute

14:37

this? Leadership

14:39

that comes from someone that's a

14:42

partner here typically, many

14:44

CEOs, sometimes CFO, some

14:47

back end functions with people that have experience in

14:49

our system that worked in different deals with us,

14:52

people from the business that have experience and

14:54

knowledge and by the way, people that will

14:56

take advantage of a great opportunity to

14:59

invest themselves or to roll their equity or

15:01

to get more equity in the deal into

15:04

the front of the house rolls

15:06

and then over time, we bring a lot of

15:09

young talent in so

15:11

that the company breeds its

15:13

culture and breeds its talent over time and you

15:16

can see the result of that in the company

15:18

like RBI where today, 80% of the

15:21

leadership team is people that are growing into the

15:23

company. How do you

15:26

think about the type of culture you'd

15:28

like your portfolio companies to breed? That

15:31

sounds repetitive but it's culture that if

15:33

there's one word I could use, it

15:35

would really be ownership. People

15:37

who genuinely care and act like

15:40

owners of the business that they're

15:42

running and so there's this line

15:44

that sometimes there's delineation in our

15:46

organization. We don't like to think

15:48

of that being delineation between ownership

15:50

and management. The people who

15:52

are running the company are the people who own the

15:54

company and I think it results

15:56

in them being more entrepreneurial. It

15:59

results in them. bringing this owner's lens to

16:01

the business, thinking about what's in the

16:04

best interest of the company,

16:06

which is also what's in the best interest of

16:08

the shareholders as opposed to thinking, oh, what's in

16:10

the best interest of the management. In our world,

16:12

we like those to be blended together. And I

16:14

think the reason it's compelling, if you

16:16

look at the history of restaurant brands and Burger

16:18

King, I'd say we're willing

16:20

to give people a shot,

16:23

maybe a little bit earlier than they get

16:25

a shot elsewhere. I think

16:27

that allowed us over the history of

16:29

the company to attract very

16:31

talented, very ambitious people who, as Alex

16:33

mentioned, are frankly the folks who are

16:36

running the business today. Well,

16:38

there's probably no better way of getting a

16:40

feel for this than diving into one of

16:42

these companies. So let's do that with Burger

16:45

King. And, Daniel, maybe the place to start

16:47

is when you're bringing this

16:50

approach to really taking

16:52

over a company and running it, how

16:54

do you go about finding a business

16:56

like Burger King to buy? We

16:59

were looking at businesses to buy. This was back

17:01

in 2009. We're

17:04

looking at all sorts of different companies, and we

17:07

found Burger King in one of

17:10

the regular screening exercises that we

17:12

do of consumer businesses that are

17:14

trading below a certain multiple, below

17:17

a certain total enterprise value. And

17:20

we saw it. We did a

17:22

whole bunch of outside in research on

17:24

the business, and

17:27

we developed a thesis basically

17:30

around the company that looked something like

17:32

the following. Great business, great

17:35

business model. I think

17:37

we were probably early to have

17:40

an appreciation of the fully franchised

17:42

business model and the value of

17:44

the franchise business model. We

17:47

felt that it was an iconic brand

17:49

that had been around 50-plus years. Actually,

17:53

we spent a lot of time studying the

17:55

history of the business from the start, from

17:57

the 1950s. if

18:00

you went back in time, you'd

18:02

learn that the business after

18:04

being founded by Macklemore and

18:07

Edgerton was subsequently sold

18:09

several times between the 1950s and

18:11

early 2000s. And that resulted

18:15

in a series of management changes over

18:17

the years. And what

18:19

we found interesting was that

18:21

notwithstanding this frequent changing in

18:24

ownership and management, the

18:26

company flourished into the second largest fast

18:28

food hamburger restaurant chain globally, at the

18:30

time around 12,000 restaurants,

18:32

80 plus countries.

18:35

And to replicate something like that, it just felt

18:37

like it would be really, really hard to do.

18:39

And so I felt

18:41

like it was a very good business operating on

18:43

a really good business model. And

18:46

when we compared its organizational

18:48

structure, cost structure, growth profile

18:51

relative to its peers and

18:53

to other companies that we were familiar

18:56

with, we felt like there

18:58

would be an opportunity if we were

19:00

to take this business over to run

19:03

it better. I remember we did some initial

19:05

work and Alex shared it with you. And

19:07

you grew up in Brazil and you told

19:09

me, no, I understand. I'm very, very familiar

19:11

with Burger King, which I was surprised at

19:13

the time. Yeah, I mean, I

19:15

first came to the US in the early 70s

19:18

to Miami. I had family living there.

19:20

And I used to eat a Burger

19:22

King every day. There was the store

19:25

on 41st Street in Miami, which

19:27

we still own. It's a company store. And I

19:29

used to go there every day. And then of

19:31

course, after the deal became successful, there

19:33

was some degree of suspicion even amongst

19:35

my dear partners, whether

19:37

the story was true or not. And

19:40

ultimately, several years later, my mom passed,

19:42

she had a habit of keeping everything. So

19:45

I found this letter at

19:47

her home from me in January

19:50

16th of 1975, basically

19:53

describing I went to Burger King

19:55

and ate Whoppers every single day. I

19:58

never liked to go to McDonald's. I

20:00

was a hardcore Burger King

20:02

fan and it was interesting to see

20:05

because as one of the outputs

20:07

of the analysis was ultimately

20:10

that the business of Burger King

20:12

was significantly smaller than the brand. I

20:15

mean it turned out that I wasn't alone. So

20:18

the brand was a much bigger thing

20:20

than the business which is a great opportunity

20:23

meaning of course there is growth

20:25

of the brand but growing the business to

20:27

become the size of the brand is a

20:29

better proposition. And while it

20:32

didn't make the investment memo, the

20:34

enterprise value of the deal was around 4

20:36

billion, it was just over a billion in

20:38

change of equity to buy

20:40

the company. I had asked

20:42

my then-fiancee and

20:45

who's a physician and my mom who's an

20:47

attorney. So look McDonald's is around 80 billion

20:49

dollars or so, yum, I think at the

20:51

time is 30 billion. What do you think

20:54

Burger King is worth? So for us, there

20:56

was that billion of equity. The

20:58

typical answer was I don't know, half. McDonald's is worth

21:00

80, maybe Burger King is worth 40. Or

21:02

20. Yes, it met the

21:04

smell test. Not one. Not one.

21:07

Not one in change of equity capital required to

21:09

do a take private. So before you

21:12

try to take the business private, how

21:14

do you go about the depth of

21:16

work required that gets you

21:18

comfortable that this is something that you should

21:20

spend your time going after? Many

21:23

months of intense

21:26

in-depth research, studying

21:29

the industry, studying the history

21:31

of the company, studying

21:33

the company, studying its peers, spending

21:36

a lot of time visiting

21:38

restaurants both of the company

21:41

and the peers. I remember

21:43

Alex and I developed relationships with

21:45

several franchisees. We

21:47

tore the country in developing relationships with people

21:50

and just learning and asking questions about how

21:52

the business is being run and how it

21:54

could be run better. Detailed

21:57

benchmarking around. of

22:00

restaurants that the brand had

22:02

in certain countries compared to

22:04

what the peers had, understanding

22:07

those underlying unit economics of how

22:10

profitable the Burger King restaurants were

22:12

compared to the peers in certain

22:14

countries, ultimately getting comfortable

22:16

that I know it sounds cliche

22:19

but with any investment making sure

22:21

that there is a large enough

22:23

margin of safety if you will,

22:25

the pro forma entry multiple was

22:27

low enough that even folks like

22:29

us probably wouldn't mess it up.

22:32

So you're doing all this work before

22:34

you even try to buy it and

22:36

I'm curious in your research process how

22:38

many different types of projects or different

22:40

companies are you studying with that intensity

22:42

to decide okay

22:45

that's the one you're gonna go knowing from the beginning

22:47

you may or may not be able to buy anyone

22:49

in the public markets that you like. Probably

22:52

the best way to explain it is we'll

22:55

only buy one business every

22:57

few years but

22:59

we study a lot of that. A

23:02

mutual friend of ours asked didn't Daniel bring you the

23:04

Burger King idea and he said yeah but you should

23:06

have seen the hundred other people.

23:10

We look at a lot of different businesses we

23:13

go pretty deep in many of them I'd say

23:15

we definitely went deeper in Burger King than anything

23:17

else at the time because of how excited we

23:19

were. Also there we had

23:21

a sense of actionability at

23:23

Burger King which sometimes you can see

23:25

something that's very interesting but you don't

23:28

see a path to completion and

23:30

in Burger King we saw that path because

23:33

it was a company that had been taken

23:35

private years before it was a successful LBO

23:38

had been taken back to the public

23:40

markets and the sponsors were in the

23:42

process of sequentially exiting the

23:45

business through blocks. We

23:47

couldn't really see any strategic buyer for

23:49

the business so we

23:52

figured that they might be

23:54

amenable to an approach for someone

23:56

that wanted to pay a premium in the market and

23:58

take the company private again. It's probably

24:00

worth also adding a couple of things. One, it was

24:02

a very good deal for the prior owners. They

24:05

had made several times their money. And two,

24:07

at the time, the business was struggling

24:09

objectively. It wasn't growing all that much.

24:11

I think the trailing growth rate for

24:13

restaurants was around one and change percent.

24:15

It wasn't opening debt, I mean, restaurants

24:18

at all, almost 100 restaurants or so.

24:20

There was a big issue with the

24:22

franchisees and the franchisor, the parent company

24:24

in the US at the time. There

24:26

were multiple ongoing lawsuits were

24:29

centered around a

24:31

dollar double cheeseburger sandwich that

24:34

was a money loser for

24:36

franchisees, which is one

24:38

of the key things in this business is

24:40

it's a great business to have a fully

24:42

franchised brand, but it needs

24:45

to be very good for everyone to

24:47

be sustainable, meaning your franchisees

24:50

making money is left, right

24:52

and center of this

24:54

business. This was a real problem. People

24:56

were very disgruntled as a function of

24:58

that. They were suing the company. I

25:01

think what we were able to do is

25:03

we're able to separate the short term issues

25:05

and the short term noise associated with those

25:07

issues from the fundamental

25:11

promising long term tenants of the business. I

25:13

think that's one of the key things on investment analysis. Usually

25:17

things are depressed, valuation of things is

25:19

depressed for a reason. And

25:21

again, that reason may or may not

25:23

be structural and sometimes it's hard to

25:26

differentiate that. I think we're lucky

25:28

that in this case our analysis helped us and Dan did

25:30

great work on this and the team that was working on

25:32

this deal to really give us

25:34

comfort around the nature of the

25:37

structural advantages of the business and

25:39

the short term nature of the

25:41

issues. Yeah, earlier today we were talking

25:44

about in hindsight, things look quite obvious. They

25:46

always do. But at the

25:48

time, it was a really complicated situation.

25:50

No one else showed up to buy

25:52

it and I'd say the headlines were

25:54

generally that we either overpaid or we

25:56

didn't know what we bought. reasonable

26:00

bushbacks that we got as we

26:02

discussed in committee was the owners

26:04

of these businesses were some really respectable

26:06

private equity firms, ultra successful ones, which

26:09

had made a lot of money by the way. So

26:12

what was it that we saw that

26:15

we wanted to pay up I think at the

26:17

time an offer 40% premium market

26:20

to take this thing private? What

26:22

was it that we're thinking that

26:24

we could accomplish that would justify

26:27

that? As you go

26:29

to get ready to make a bid and a

26:32

lot of times companies you've got embedded

26:34

constituents. So you do have the private equity

26:36

owners who may want to be exiting but

26:38

you also have a management team who has

26:41

their jobs. How did you

26:43

decide how to go about the approach

26:45

to make the bid for the company?

26:48

I had a good relationship with

26:51

one of the three private equity owners

26:54

I called the managing partner there

26:56

and then he

26:58

was a bit surprised

27:02

but amenable to

27:04

a conversation introduced me to the chairman and

27:06

CEO at the time. I

27:09

traveled to Miami had lunch with him. I

27:12

think he was properly incentivized he had

27:14

been in position for many years had

27:17

done a good job because I mean their

27:19

payback for everybody was happy and

27:21

of course that man he was also that

27:24

meaningful equity holder the business. So

27:26

they were amenable on both sides

27:29

both management and the anchor shareholders

27:31

were interested in the conversation. What

27:34

was the process from that initial

27:36

overture to getting the deal done?

27:38

Six months of conversations back and

27:41

forth. I think it's

27:43

worth just maybe giving some context this

27:45

is 2010 this is just host global

27:47

financial crisis there weren't all that many

27:50

deals let alone large deals. It's interesting

27:52

one of the conversations you would have

27:55

at that time after the great financial

27:57

crisis was basically

27:59

convinced the sellers

28:01

in that case that you would conceive

28:06

of that today but a four billion dollar

28:08

LBO in 2010 was by far the

28:12

largest deal after the crisis. I

28:15

needed a long roadshow that was

28:17

a long process and also

28:20

after the financial crisis there was still

28:22

significant volatility to markets and

28:24

to stock prices which further complicated

28:27

matters. There were periods from

28:29

when we started the negotiation to when

28:32

we signed the transaction where I'd say

28:34

that lever debt capital markets were soft

28:36

if you will temporarily closed. So

28:38

how did the bidding for the company play

28:40

out? So we ended

28:44

up in a very similar point to

28:46

where we started. We started at 24

28:48

but then

28:51

the markets became very different and

28:53

the leverage markets became very different

28:55

than the equity markets corrected a

28:57

lot. We went down our

28:59

offer which is not the usual intuitive path.

29:02

We're bidding against ourselves though and

29:04

then we went back up but the stock

29:07

was down. So anyway so it was a

29:09

long convoluted volatile process that ended

29:11

up in a similar place. And

29:13

what was Burger King when you

29:15

bought it in terms of number of stores

29:17

on the footprint? And it was

29:20

around 12,000 stores

29:23

operating in around 80 plus

29:25

countries but I think what was

29:28

interesting about the time is that it wasn't

29:30

growing all that much. It was growing one

29:32

and a half, growing a couple hundred units

29:35

on a base of 12,000 and our competitors were

29:37

growing a whole lot more. We

29:39

paid around 4 billion and

29:42

it was doing around 450 million or so of EBITDA,

29:44

maybe 150, 175

29:49

million dollars of trailing CapEx at the time. So

29:51

high 200, 300 ish of on

29:54

leverage free cash flow and

29:57

that's what the business looked like at the

29:59

time. So once you

30:01

have control over it, you company,

30:06

what are those first steps that you

30:08

took over the first six months or

30:10

year to bring in your people

30:12

and start to make changes happen? The

30:15

first two steps we took was

30:17

a composition of the team and

30:20

subsequently addressing the efficiencies. We

30:22

had a new leadership team which is a

30:24

combination of folks from 3G. I

30:27

joined as ZFO, one of

30:29

our partners joined a CEO. We

30:31

elevated a couple of really good

30:33

people within the company, brought in

30:35

someone from the beer business that

30:37

Alex mentioned earlier to help out

30:39

in terms of people and reorganization.

30:41

We set a bold ambitious goal

30:43

for the business of trying to

30:45

be the best and the fastest

30:47

growing restaurant company globally. We

30:50

tried to create a more entrepreneurial atmosphere.

30:52

We took down all of the offices,

30:54

we took down the walls and we

30:57

created an open floor plan so

30:59

everyone could have a more collaborative

31:01

environment. As part of setting

31:03

this bold ambitious goal, we copied

31:06

a lot of what Alex did so

31:08

successfully at the railroad company in terms

31:10

of the management style to achieve a

31:12

long-term bold ambitious goal. It happens one

31:14

year at a time so we set

31:16

goals for the organization around the number

31:18

of units that we'd want to open,

31:20

the sales growth that

31:22

we'd have, the capital returns that

31:24

we'd have and we

31:27

posted those goals all around the organization to give

31:29

everyone visibility on how we were doing. So behind

31:32

people's desks you'd see their goals for

31:34

the year, red, yellow and

31:36

green metrics to create a lot of

31:38

transparency and visibility within the organization of

31:40

where it is that we were taking

31:42

the business and how we

31:44

were progressing. And as Alex said,

31:47

we felt that there was an

31:49

opportunity to run the business more efficiently and

31:51

so as part of the zero based

31:53

budgeting effort, we have compartmentalized

31:56

costs around the organization and

31:58

we made groups

32:00

accountable for what it is that they were going

32:02

to spend. We gave people budgets and we tried

32:04

to benchmark inside and outside and so if one

32:07

group was spending x dollars a year

32:10

on travel per person then the other group

32:12

should try to match that. Little things like

32:14

this, it wasn't overly complicated. But

32:17

as a result of that, we probably

32:19

as a result of that first phase,

32:21

we ended up owning the business of

32:23

a price to earnings ratio of five

32:25

or four. Yeah, it's like a 25%

32:27

free cash flow yield within

32:29

the first year or so on our equity. Which

32:32

gave a lot of margin of safety to

32:34

the investment. What was so great

32:36

about this business is that it was a

32:38

mature business in the sense that it had

32:40

a 50-year history but there was so much

32:42

opportunity to make it way, way bigger. And

32:45

so after making the business more efficient,

32:48

we really set our sights on how

32:50

do we make this the fastest growing

32:52

restaurant company globally. And

32:55

we noticed in certain countries,

32:58

the brand was stronger than in other countries

33:00

depending on how we'd go to market. And

33:03

we as a team

33:05

and board developed a

33:07

view that we should

33:09

have large, well-capitalized, master-franchised

33:11

partners with great

33:13

local operating expertise in

33:16

some of the bigger markets. So then

33:18

we set our sights on creating these

33:20

partnerships around the world and

33:22

in the first couple of years, we created

33:25

partnerships in Brazil, in China,

33:27

in France. As

33:29

an anecdote, I mean when we

33:31

bought the business in France, there

33:33

were no Burger King restaurants in

33:35

France. It's one of

33:37

our competitors more profitable markets globally

33:39

but I think we crossed two

33:42

billion in France. The biggest

33:44

market for the Burger King brand

33:46

other than the United States. Yeah,

33:48

the seeds that were planted led

33:50

to a decade plus of growth

33:52

and it's still compounding. As

33:55

we talked about earlier, that's really what allowed

33:57

this to become such a large company. Can

34:00

you break down those two aspects of

34:02

that initial goal setting? So the first

34:04

is efficiencies and the second is

34:06

growth. As you describe it, it

34:10

sounds really simple. Put a

34:12

bunch of goals in place that are tied to these

34:14

financial metrics and then it happens. What

34:16

are the aspects of driving

34:19

what seems like a very simple

34:21

way of improving efficiencies and actually

34:23

making that happen at the company?

34:26

Daniel's being humble about the zero-based budget that was

34:29

done there. I mean there were some real opportunities

34:31

in the near term to increase the beta. There

34:34

was a lot of money being spent

34:36

away from the business meaning

34:38

on more bureaucratic corporate layers and

34:41

things that really had little impact

34:43

on sales and little impact

34:45

on opening the restaurants. There

34:47

were some meaningful dollars there. Nearly

34:50

50% growth in the EBITDA. Yeah. What

34:52

are some examples of those types of expenses that

34:54

have been in place? One example,

34:57

many multi-million dollar FedEx budget that

34:59

90% of it converted to email

35:01

instead. Coming in with a fresh set

35:03

of eyes, making those hard decisions is easier said

35:05

than done. On the growth side,

35:07

I think one interesting thing I think is

35:09

this investment horizon difference that we have because

35:14

do I think we're any smarter than any

35:17

of the prior owners for example of this business?

35:20

There's no way. I mean there's some

35:22

of the smartest people that exist in this

35:24

industry. That's not the case. I think we

35:26

did have a very different time horizon. Then

35:29

for example, some of these expansion opportunities

35:31

that Dan alluded to, we're talking about

35:33

France. France became a big deal

35:35

but that's now 14 years in the

35:38

making. When you had to spend a lot

35:40

of money and attention and focus and actions,

35:43

first to source the right master

35:45

franchisee, then to make sure organize

35:47

the capitalization of that franchisee and

35:49

help them with that, then

35:51

local sourcing of ingredients, customization,

35:53

a menu, then slowly

35:55

real estate if you want to get

35:57

quality locations that can be done overnight.

36:00

So a lot of actions that

36:02

do create a lot of value but on

36:04

a longer horizon, same thing

36:06

that I said about France, I could have said

36:09

about China or Brazil. So

36:11

I think the horizon was an important

36:15

enabler of us to make

36:17

some of the decisions that we made. The

36:19

other way we got the organization excited

36:22

about the direction we were taking the

36:24

company in is frankly through

36:26

the equity ownership that we brought to

36:28

the company. Just like you did

36:30

the railroad, we had this philosophy

36:32

that for people who acted like owners and

36:35

really held themselves accountable and cared, we wanted

36:37

to make them owners in the business. And

36:39

so we granted

36:41

sizable stock options to

36:44

top 150 people in the organization to

36:46

become owners

36:49

of the business. We also let

36:51

folks who you know right

36:53

received proceeds as part of the Burger

36:56

King take private transaction. We let them

36:58

reinvest those proceeds into the

37:00

company and we leveraged them. We

37:02

gave them multiple times matching. And

37:05

the other piece that we did each year, we allowed

37:08

the top couple

37:10

few hundred people in the business to

37:13

take a portion of their bonus and

37:16

if they wanted to, they could

37:18

buy stock in what was then private

37:20

Burger King and we would match

37:22

them as well. We'd essentially give them leverage and

37:26

so we really created this

37:28

cultural alignment within the organization

37:30

that we were all

37:32

on the same team, we were all shareholders,

37:35

we were all owners of this

37:37

business that yeah we'll have to

37:40

make some tough decisions and we're gonna have

37:42

to do certain things differently if we want

37:44

the next five years or ten years to

37:46

look a little bit different than the last

37:48

five. But I think everyone

37:50

was aligned. Everyone was in the same boat

37:52

with respect to where we needed

37:55

to take the company. As

37:57

you're working through that and buying

37:59

the existing company and really starting

38:01

a more rapid expansion. It's

38:04

hard to get all those people decisions right.

38:06

I'd love to hear how you thought about

38:08

assessing people along the way. I

38:10

think this goal system that we have is

38:12

a great facilitator at that.

38:15

Evaluating people will never be 100% objective but we

38:18

had at least an objective basis to start from

38:20

in terms of the goals

38:22

for the year and how did that person

38:24

stack up against those goals and not

38:26

only if they achieve them or not but what is it

38:28

exactly that they did or didn't do.

38:32

So we had a system to do this

38:34

quarterly and at the end

38:36

of the year became apparent in I would say

38:38

in 80% of the cases, it

38:40

was pretty easy to differentiate who

38:43

was doing more and

38:45

deserved more responsibility and deserved

38:47

more equity versus

38:49

who didn't. And

38:52

we were fortunate there were a lot of great

38:54

people at the business in 2010 who'd meet

38:57

with these people and we'd ask them say, what

38:59

do you think we could do better? And there

39:01

was no shortage of great ideas and there were

39:03

a lot of people who were

39:05

promoted who really bought into what

39:08

we were trying to do and they

39:10

had both the knowledge and experience in

39:12

the business and the ambition. I'd

39:14

say we also spent a lot of time

39:17

recruiting folks out of business school. I

39:19

would make regular trips to business schools,

39:22

get the resume books in advance and

39:25

cold email folks who I

39:27

thought had impressive resumes and if you

39:29

get an email from say cold email

39:31

CEO or CFO of this company I'm

39:33

on campus and do you want to

39:36

meet, I got a nice response rate

39:38

and for people who seemed really ambitious

39:40

and wanted to do something big, something

39:42

maybe different, we would make offers on

39:44

the spot and we hired a lot of great people. As

39:47

a result of that, you look today our CEO is

39:49

37. Our CFO

39:51

is hired out of HBS. Oh, the same,

39:53

you know. Mid 30s. The

39:55

president of international was also hired out

39:57

of the MBA program. These

40:00

people have all been with us decade plus. But

40:02

it goes back to what Alex is saying. I think that

40:05

speaks to the long-term ownership

40:07

horizon. The folks we hired, it's 2024.

40:09

A lot of these folks we hired, we hired 2012, 2013, 24.

40:13

They grew up throughout in the organization and we

40:15

knew that a decade in, they added incredible amount of

40:17

value. But you have to make a long-term bet on

40:20

these folks. How far along

40:22

in the trajectory of changing the business did

40:24

you start thinking about acquisitions?

40:27

That's a great question. The

40:30

first thing that needed to change for us to do

40:32

that was our balance sheet. We

40:34

leveraged what? Puz-eye seven times six and a half

40:36

times off the gates. And we

40:39

were a few years into this process

40:41

back to two and change or three

40:43

or not even three. So

40:45

balance sheet first. So that was

40:47

the first enabler. The second is we

40:49

felt the first green shoots of what

40:52

we're doing in terms of international restaurant

40:54

growth expansion in terms of turning the

40:57

corner on the same

40:59

store sales into the domestic system.

41:02

So we saw the green shoots on the organic side

41:05

coming up and we had the balance

41:07

sheet and we had the people. So

41:10

we started to have some bandwidth in

41:12

terms of people to do more. That got

41:14

us again back on the hunt.

41:16

And kind of comfortable with the business because we

41:18

hadn't owned a restaurant company. Few

41:21

years into the business, we liked it a lot

41:23

more even than we did at the start. So

41:26

where did you turn at that point in time?

41:29

We ended up going public in 2012,

41:33

year and a half into this mid-12 and

41:35

this was a late 2010 closing. And

41:39

between the dividend that was paid

41:41

and the proceeds of selling quarter

41:44

of the business or whatever that was, we

41:47

returned 130% capital give or take. That

41:50

was made whole and we owned 70% of

41:53

the business which was at

41:55

the time, I think our IPO

41:57

valuation implied 4 or 5x multiple.

42:00

original, emotional investment which was

42:02

in and of itself recharged.

42:06

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And now, back to the show. Why

43:19

did you decide to turn around and go public so

43:22

quickly after turning it around? We

43:24

didn't. We

43:28

were approached by a SPAC and

43:31

that was basically run by

43:33

people that we respected and

43:35

knew and they wanted to do

43:37

a deal with us by virtue of which

43:39

we would have become a public company. And

43:42

of course, that was a process

43:45

in terms of discussing valuation and discussing

43:48

how to deal with some of the

43:50

incentives and things that are typically associated

43:52

with SPACs for which there was a

43:54

limited space here, given

43:57

the size of the deal. But that negotiation went

43:59

well. evaluation was compelling

44:01

enough. We respected the people that

44:03

had this back. We thought there would be good

44:05

shareholders and good partners and then

44:07

we decided to proceed. So we weren't So

44:12

now you're accidentally a public company. We were

44:14

a year or two away from it. And

44:16

then Daniel said so that plays out first

44:18

and then you start looking at expansion. Yeah,

44:20

that helped the balance sheet. We were in a $5 billion

44:23

market cap company and we

44:25

continued to grow quite nicely. We

44:27

continue to grow our system-wide sales

44:29

at attractive rates. We continue to

44:32

grow our EBITDA, our cash flow.

44:34

I think we probably reached around

44:36

at 10 billion or so market

44:39

cap company. And as Alex said, we

44:41

liked the industry. We liked the franchise business

44:43

model even more

44:45

than we did prior to

44:47

becoming owners and operators of

44:49

the company. And

44:52

we looked around the world around

44:54

different franchise restaurant concepts.

44:56

And I think

44:58

at some point we came across Tim

45:01

Hortons and felt that

45:03

it was one of the most

45:05

special businesses and brands in any

45:07

market in any category we've seen anywhere.

45:09

And Josh Kobza,

45:11

our now CEO, led

45:14

the work on that together with me and Alex

45:16

and the team here at 3G. And we

45:20

pursued the acquisition or combination

45:22

together of Burger King and

45:25

Tim Hortons. This would

45:27

have been 2014, 2015 timeframe.

45:30

The more we learned about the Tim

45:32

Hortons business, the more excited we were.

45:34

When Tim Hortons was a franchisor

45:37

of excellence, incredible franchisee

45:40

community. It had most

45:42

of the real estate in the

45:44

steel. It manufactured and distributed the

45:46

products. It was an incredible business.

45:49

It has an unparalleled brand. And I was able

45:51

to do a common friend to schedule

45:54

a dinner with the CEO of the

45:56

business in Toronto. We really

45:58

hit it off. and he

46:00

was amenable to a proposal from us.

46:04

Then as we looked through the numbers,

46:06

we needed financing, not just debt financing

46:08

but to make the numbers work properly

46:10

in the right risk adjustment

46:12

basis, we needed a few billion of

46:15

preferred equity. At that point, we had

46:17

developed a good relationship with Warren Buffett.

46:19

He was good friends with one of

46:22

my co-founders, Roger Lemma for many years,

46:25

had teamed up with us on the Heinz deal that

46:27

happened in 2013. And

46:30

we were able to approach Warren, show

46:33

him the deal, he liked the brand, he

46:35

liked the Tim Hortons brand, he was very

46:37

enthusiastic to participate in financing. So we had

46:39

all the financing lined up

46:42

and then that challenge really

46:44

became one of reaching agreement with

46:46

Tim Hortons. Processed it took several

46:48

months and back and forths

46:52

of proposals. I think the first proposal

46:54

that we sent them took

46:56

six weeks to get a response

46:58

with absolute radio silence. The response

47:00

had half a paragraph where

47:03

it politely wished us luck in

47:05

future endeavors. And then

47:07

in each case, we presented a second proposal

47:10

which was responded in three hours with the

47:12

exact same half paragraph letter. We

47:14

later learned of the boardroom dynamics there where

47:17

there were people in favor, people against, but

47:19

ultimately were able to navigate

47:22

that successfully to an announcement.

47:25

I think we started in March, I think

47:27

late August we were announcing a deal.

47:30

It was quite an interesting thing

47:33

because Tim Hortons in Canada is that gigantic

47:35

thing. I don't know that there is a

47:37

consumer brand in this country that has the

47:39

same amount of equity

47:41

and weight. So it's something you had to talk

47:43

to the prime minister about. It had

47:46

to undergo a government review process and

47:49

make a variety of commitments. It

47:51

was quite the process. For context,

47:53

this was at the time for us already

47:56

a home run of a deal. We had

47:58

returned 130%. son of

48:00

the capital, it was paying a nice dividend,

48:02

I think with 10-ish billion dollar companies, it

48:04

was a home run in all respects. And

48:06

again, I think it comes back to the

48:08

long-term nature of how

48:11

we operate and even we said

48:13

to ourselves at the time, most

48:15

rational private equity firms would have

48:18

sold versus re-levering and betting everything.

48:20

Re-levering and rebetting, re-upping everything. I

48:23

remember this is summer I'd called you, I was

48:25

the CEO at the time and I said to

48:27

Alex, I really feel strongly we should bet the

48:29

firm, we should bet the business on this. To

48:32

Alex's credit, I mean he believed in it, he

48:34

was willing to make the bet on the team

48:36

running the combined business at that point. Which

48:38

in hindsight, it's like, oh, it was really obvious

48:41

that Tim Horton's EBITDA is now 80% higher

48:43

or whatever it is and the cashflow

48:45

doubled, we've expanded it globally. It was such

48:47

a good business that even as an hour

48:49

team, we couldn't mess it up. When

48:52

a company twice has said, no thanks

48:55

and they tell you next to nothing in a

48:57

small paragraph, how do you take it from there

48:59

to a few months later getting a deal done?

49:03

We found that we

49:05

spoke to a lot, try to find channels

49:07

into the board and then of course through

49:09

those channels, gain insight

49:11

into what was going on to

49:14

understand was this a unanimous basically

49:18

no, where no

49:20

one would never do a deal

49:22

and everybody agrees or is it something

49:24

where there is some level of

49:26

discussion and different views and

49:28

it turned out to be the latter. We

49:32

felt that the business was good

49:34

enough and that we had enough

49:38

financial wherewithal to

49:41

make a better offer that

49:43

potentially would enable that side

49:45

of the argument to prevail.

49:49

And we felt that there were concerns about

49:52

us and about basically

49:55

that Tim Horton's in the past had been

49:57

sold by the EBITDA. founders

50:00

to Wendy's and

50:02

from Tim Hortons perspective,

50:05

they didn't feel that this had been a great

50:07

development for them and they

50:09

were able over time to be spun off of

50:11

Wendy's and they were independent again. The

50:14

resistance to the deal was a thought

50:16

process of do we need to be owned

50:18

by a US burger chain again and

50:20

this burger chains sometimes could be maybe

50:23

short term, maybe they won't focus

50:25

on Tim Hortons, we've got afterthought and

50:28

we felt all the opposite of that. We felt

50:30

it was a great business, we wanted to own

50:32

it and develop long term, we wanted to take

50:34

it to the world and we felt that

50:36

we could help make Tim's global and so we

50:39

felt that if we're granted the light of

50:41

day in terms of going and talking to

50:43

people at the board, they would understand that

50:45

and hopefully that's what happened and

50:47

that helped the board then evolve from a little bit

50:49

of a situation where this

50:51

is diverging points of view to

50:54

a more consensual position. It didn't

50:56

help that in the summer of 2014. Right

51:00

in the middle. Right in the middle of this, I was

51:03

traveling in India touring restaurants

51:05

that Bloomberg Businessweek had been

51:07

trying to write a story

51:09

about us, about our management

51:11

team at Burger King. The spirit

51:14

of the details, the title of the story was

51:16

Burger King is run by children and

51:20

deep dive into all of our

51:22

ages and backgrounds. I was a

51:24

CEO at the time for Josh,

51:27

Kabsar, now CEO, was our CFO, he

51:29

was 27, our head

51:31

of North America, 39. It didn't help

51:33

our cause but

51:36

I think as Alex said, eventually when we

51:38

all met and we talked to them about

51:40

the plans that we had for the business

51:43

and our global growth trajectory,

51:45

not just for Burger King but for

51:47

Tim Hortons, it all worked out. Once

51:49

you bought that brand, you have

51:52

these two levers of driving efficiency and growth.

51:54

How did you think about Tim Hortons? As

51:57

is the case with Burger King, there was

51:59

initial opportunity. to run the business more

52:01

efficiently. Also, the combination

52:03

of two distinct public

52:05

entities always creates synergies. There

52:08

were real synergies there. But ultimately,

52:10

what's driven and what's driving the value

52:12

is the global growth of Tim Hortons.

52:15

And so now, throughout

52:17

Europe, Latin America, Asia, you can go

52:20

to a lot of countries that at the time of the

52:22

acquisition, you couldn't have and have a cup of Tim's today.

52:25

And speaking to the long-term nature

52:27

of our plans and our ownership

52:29

here, that'll continue to pay dividends

52:31

and grow for decades. Also, there

52:33

was a big opportunity on the

52:35

Tim's business on a consumer CPG

52:37

level. Tim's went from

52:39

being at retail other than the stores where

52:41

we have a 75% share of coffee out

52:44

of home in Canada. But we

52:47

were not the leading brand on

52:49

home consumption. And

52:51

so that was a big opportunity. Of course,

52:53

it required agreement with the French and how

52:55

to go about that. But today,

52:58

I mean, that business quadrupled, that was a little

53:00

bit now or something over the years. And

53:02

we are the number one brand in Canada. As

53:05

you look at the real estate footprint as

53:07

you're growing, you've got Burger King internationally, you

53:09

now have Tim Hortons you're bringing out. Just

53:12

thinking of the YUM brands where they've put

53:15

the Pizza Hut alongside their other brands,

53:17

how did you think about the real estate

53:19

footprint of these two? While

53:22

there would be back of the

53:24

house synergies in terms of finance,

53:26

procurement, supply chain, legal,

53:28

we actually felt it's very

53:30

important for the brands to

53:33

maintain their own distinct brand

53:35

identity and brand management. Part

53:37

of that is real estate development and

53:40

marketing. I think it's

53:42

very important that each of these

53:44

brands has their separate management, separate

53:46

go-to-market. It'd be seen differently in

53:48

the eyes of the consumers. Now

53:51

once you have these two, you've got

53:53

them humming the way you want, you continue growth,

53:55

how do you think about continuing to expand from

53:57

there? So a couple of

53:59

years. later I'd say like second

54:01

half of 2016 we

54:04

began studying... Malachute the leopard

54:06

from it. We

54:09

were delivering and we began

54:11

studying some of the other

54:14

categories and at that

54:16

point we were in coffee, in

54:19

burgers, one of the fastest

54:21

growing categories both in the US and globally

54:23

is chicken and we felt that we ought

54:25

to have a presence in chicken. We identified

54:29

Popeyes as a

54:31

natural potential addition to the

54:33

portfolio and we

54:35

did quite a bit of work on

54:37

that business understanding it, understanding its growth

54:40

potential. It would be a

54:42

very different transaction than Burger King and Tim's

54:44

because it was much smaller. At that

54:47

point we're you know north of a

54:49

25-30 billion dollar company this was gonna

54:51

be a sub 2 billion dollar acquisition

54:54

and I think we felt that there

54:57

would be a lot of growth

54:59

potential both in terms of expanding

55:01

the unit based domestically and globally.

55:06

Look at it backwards now seven

55:08

years of ownership and

55:11

it's a great case in point to

55:13

illustrate that the system in play. So

55:15

you initially had a significant

55:18

gain in it but by

55:20

virtue of the backhand synergies Popeyes

55:22

was if you were the subscale

55:24

public company so there were a lot

55:27

of costs that could come out by virtue of being

55:29

part of restaurant brands international. Maybe

55:31

just to double click on that it's 18 times acquisition

55:34

buys down to about 12 times. Yeah. Rough

55:36

math. Just by virtue of doing that. Then

55:39

you fast forward to today on a company three

55:41

times as big in sales then what

55:43

we bought and again a function of fast

55:45

international and domestic expansion or restaurant

55:48

count and basically

55:50

launching a boneless

55:53

product which is chicken sandwich. The

55:56

restaurant counts up 70%, AUV is up 30%. You

56:00

mentioned that the franchise business at

56:03

the Original Burger King you learned was even better

56:05

than you thought. After

56:08

doing this now the third time, what

56:10

is it that makes it such a

56:12

special business? The franchise

56:14

business basically is a business

56:16

where you partner with

56:18

people, put

56:21

their own capital and their entrepreneurs. They're

56:23

excellent operators in their parts of the world.

56:26

They have the ability to identify real

56:28

estate, they have the ability to attract

56:30

and train good managers and

56:33

then you bring a brand that

56:35

has great awareness, great preference to

56:37

the table and that really

56:40

enables them to win in such a

56:42

way that from your standpoint your

56:44

P&L is mostly comprised

56:47

of royalties and franchise fees.

56:49

So it's very very capital efficient and

56:52

has a lot of room for you to naturally grow

56:55

as long as you don't lose the focus

56:57

that your business is to make sure that

56:59

this franchise is made money. That

57:01

is your business and at that point with yours, you have

57:05

to always keep line of

57:07

sight that that's the goal of the business. So

57:09

the other aspect of that is now doing this

57:11

the third time. It sounds like

57:13

it works beautifully but there's always bumps in

57:15

the road. So what were some of the

57:18

things you learned from going through it either

57:20

at Burger King or then at Tim Hortons

57:23

and now at Popeyes that you

57:25

got more efficient at over time. One

57:28

of the most important avenues for

57:30

us is making sure that we

57:33

buy one of these businesses

57:35

or when we own one

57:37

of these businesses that we

57:39

have great partners developing the

57:41

brand in their home markets

57:43

that they're well capitalized, great

57:45

local partners with incredibly strong

57:47

unity economics and

57:50

naturally you're not gonna have a hundred percent success or

57:52

you're gonna have bumps along the road and

57:55

I think with us it's always learning from

57:57

the mistakes that you make along the way with

57:59

certain partners. making sure you have

58:02

the right local partner

58:04

that's well capitalized with the

58:06

right operating capabilities, maybe in the early

58:08

days with certain brands, maybe we went

58:10

to a country too soon or too

58:12

quickly or we picked a partner who

58:14

had a lot on his or her

58:16

plate with other businesses or other brands

58:18

and I think any one

58:21

of those factors can play in, that's

58:23

when you don't grow as

58:25

quickly as you can. It sounds pretty simple

58:27

but just making sure that we

58:29

are delivering a great brand with

58:31

great unity economics to a partner

58:34

that is ready to

58:36

be successful in that market, that's

58:38

when the magic happens. In

58:40

the case of India for instance,

58:42

we didn't rush in, we jointly

58:45

developed a localized menu

58:47

with our partner like over the course

58:49

of a year before we open our

58:51

first restaurant so making sure you take

58:53

all the steps necessary both on the

58:55

company side and the franchisee side to

58:57

ensure success is probably one of the

58:59

most important things we can do. Once

59:02

you have Popeye's coming, this playbook now

59:04

is so obvious to just rinse and

59:06

repeat so where did

59:08

you step in after that? The

59:11

latest acquisition that we did was

59:13

a company called Firehouse Subs, this

59:15

is in the end of 2021

59:17

and so that's the

59:20

fourth leg. We think about that,

59:22

it's a large category, the subs

59:24

category and there are several smaller

59:27

brands, Firehouse being one of them

59:29

that are growing at really really

59:32

attractive rates of return. We have

59:34

an incredible product, the brand stands

59:36

for something that is incredibly

59:39

important in the communities in which it operates

59:41

in terms of giving back and

59:44

we see room to

59:46

grow this business domestically

59:48

and globally for decades. I

59:50

think we opened up the first international restaurant,

59:53

it was under our ownership in Switzerland and

59:55

we have ambitions to bring that all around

59:57

the world and there's an example of a

59:59

large sub company. that has quite a

1:00:01

big global presence and we think that there's

1:00:03

plenty of room to have many many more

1:00:05

firehouse subs. So if you look

1:00:07

at all of this today, what

1:00:09

are the quantitative metrics of

1:00:11

the number of stores or franchises

1:00:14

across the brands that are part

1:00:16

of RBI? We have 30,000

1:00:18

restaurants north of 40 billion in sales,

1:00:20

50 billion plus or minus

1:00:22

total enterprise value. The company recently had put

1:00:24

out that it hopes to go to 60

1:00:26

billion in the next five or so years.

1:00:29

We became a real big business. You're

1:00:32

14 years in, do

1:00:34

you start to think about an exit or is this something

1:00:36

you're planning to own for another 21 years? We love

1:00:39

the business. We I think at

1:00:41

the moment are so excited first of all with

1:00:44

the team that we have in place. We

1:00:46

have this combination of talent that grew up in the

1:00:49

business. We have had

1:00:51

the fortune of finally

1:00:53

because we had conversations with our

1:00:55

common friend Patrick Doyle for

1:00:58

quite some time. Patrick really hit it out of

1:01:00

the park in his tenure

1:01:03

at Domino's. It's a landmark in

1:01:05

this industry and we're so fortunate to

1:01:07

have him as our partner and the

1:01:09

combination of Patrick and

1:01:12

the young team that we have there that came up

1:01:14

through the business. I

1:01:16

think we feel very very good

1:01:18

about people first. We feel very

1:01:20

very good about the continuation of

1:01:22

the opportunity to open restaurants around

1:01:25

the world and to grow

1:01:27

same-store sales in all four brands

1:01:30

still. So as a

1:01:32

combination of those two things I think this

1:01:34

is as the company has publicly guided. They

1:01:37

can grow high single-digit same

1:01:39

system-wide sales for a long time

1:01:41

and the cash conversion of that

1:01:43

given the nature of the fully

1:01:45

franchised business is one in

1:01:47

which the company pays a lot of

1:01:49

dividends today by the way. We

1:01:52

received two-thirds of our notional equity check

1:01:54

a year. So it's

1:01:56

very cash-flowing and has a

1:01:58

great compounding line of sales. ahead

1:02:00

of us a great team so we're you

1:02:04

think about the competition for your

1:02:07

own capital between keeping it

1:02:09

in a business that doing nicely and you

1:02:11

see a lot of visibility compared

1:02:13

to the kind of inflection you've been

1:02:15

able to create in a new business.

1:02:18

We think that between the

1:02:20

liquidity that we have from this different

1:02:22

investments over the years we

1:02:25

do have the capital every

1:02:27

several years to try to start a new

1:02:29

one of these. We're very excited about Hunter

1:02:31

Douglas that we started two years ago in

1:02:33

partnership with the Sonnenberg family. We think we

1:02:35

can do both as

1:02:38

long as we don't get out of

1:02:40

the discipline that of only starting a

1:02:42

new thing every several years when

1:02:44

we have people and when we

1:02:46

have time to focus and so on. Yeah

1:02:49

how often do you get to be

1:02:51

a part of a great business led

1:02:53

by a great team of people who

1:02:55

you've worked with for a long

1:02:58

time and have developed trust and

1:03:00

respect for over their successful tenure

1:03:03

in the business. We

1:03:05

had Patrick and Josh and the folks

1:03:07

involved there and so we're excited about

1:03:09

the long-term outlook for the business. Alex

1:03:12

you mentioned just a tiny bit at

1:03:14

the beginning that you do have another

1:03:16

vehicle that you're looking at buying

1:03:19

another business. Where

1:03:21

are you in that process? I

1:03:24

don't know that we at the

1:03:26

moment have anything where we are

1:03:28

really really ready

1:03:30

to put a trigger on. I

1:03:33

mean we do have some pretty

1:03:35

interesting proprietary situations in which we

1:03:38

have been able to get

1:03:41

close and get engaged and

1:03:43

to work on although there's

1:03:45

nothing that's really

1:03:48

mature to trigger

1:03:50

on. How

1:03:53

do you think about what industries you'd

1:03:55

be interested in looking at? Maybe

1:03:57

a way to answer that is what industry

1:04:00

or would we not want to look at? We

1:04:03

want to own fundamentally

1:04:05

good but somewhat

1:04:08

reasonably easy to understand

1:04:11

business and so you could

1:04:13

think about what that knocks out and

1:04:16

ideally a business that has a good

1:04:19

moat, a long operating history that's

1:04:22

not likely to be disrupted

1:04:24

or disintermediated anytime remotely

1:04:26

soon and ideally businesses

1:04:28

that aren't overly cyclical so it's not like

1:04:30

we're working so hard to run the business

1:04:32

better we just get the cycle wrong and

1:04:35

place for too long and those are some

1:04:37

of the criteria that we look at and

1:04:40

maybe that's why we ended up

1:04:42

owning some of these consumer businesses

1:04:44

in the past because they fall

1:04:46

into that bucket of somewhat easy

1:04:49

to understand been around for a long

1:04:51

time most likely not gonna get disintermediated

1:04:53

or disrupted try not to

1:04:55

over complicate things on our end. Incidentally

1:04:58

that's one of the things that's

1:05:00

so great about this fully-fringed,

1:05:02

quick service restaurant businesses which is

1:05:04

they're really not cyclical at all. Meaning

1:05:08

on downturns people trade down

1:05:11

look at what happened to the Ibedal

1:05:13

McDonald's or Burger King or Domino's

1:05:15

or all these brands in the great

1:05:17

financial crisis and the answer

1:05:20

is not much in most cases it grow.

1:05:23

So they're very resilient in that way which

1:05:26

is a very positive trait of this kind

1:05:28

of business. What have been

1:05:30

your biggest lessons learned from this deal

1:05:32

over this 14-year run? For

1:05:35

me it was my first deal

1:05:37

it was my first time running

1:05:40

a company and I'll apologize in

1:05:42

advance for my lesson not seeming

1:05:44

overly insightful but frankly

1:05:46

it was just the importance of having

1:05:49

a great team which again as the

1:05:51

29-year-old who is doing the analysis on

1:05:54

the deal after we bought the business

1:05:56

and Alex came to me and

1:05:58

said we need to assemble the team. Just

1:06:00

understanding the overall importance on

1:06:02

having A++ people

1:06:05

involved in the organization who are fully

1:06:07

committed to making a world-class

1:06:09

success until you're part of

1:06:11

it, I fully appreciate

1:06:14

how important it was to have

1:06:17

an incredibly talented team running the

1:06:19

business. Everything that has

1:06:21

happened that has enabled us 28 times,

1:06:24

returning our notional capital in this time frame

1:06:26

and how much more we expect to achieve

1:06:28

with this business. So

1:06:30

much of it has to do also

1:06:32

with having entered a high quality, great

1:06:34

business. There is no

1:06:37

substitute for that. Particularly if you're

1:06:39

going to hold it for a long, long

1:06:41

multi-dacket period. It needs to be

1:06:43

a good business. I don't

1:06:45

know that we are one of these people

1:06:47

like Steve Jobs or someone that's really, really

1:06:49

smart and the genius that we'll be able

1:06:51

to convert are so-so or a bad business

1:06:54

into a great business. So

1:06:56

we need to find great businesses

1:06:59

and sometimes the greatness will be

1:07:01

obfuscated by everything that's going on short term

1:07:03

and the noise associated with these things going on

1:07:05

short term. The fact that the

1:07:08

business is a great business is

1:07:10

no small part of what happened here. What's

1:07:13

both your favorite aspect of doing deals

1:07:16

and investing? We're not a

1:07:18

conventional investment firm. My favorite aspect

1:07:20

really centers around the people. I

1:07:22

had this opportunity to go initially as CFO

1:07:25

and then became CEO and ran the company

1:07:28

both from the financial side and CEO side for

1:07:30

nearly a decade. My favorite part

1:07:32

of the whole process was getting

1:07:35

to recruit, develop,

1:07:39

train some incredibly

1:07:41

talented special people who are

1:07:44

now today running

1:07:46

the organization. It's

1:07:48

extremely fulfilling. The

1:07:50

people cycle from hire to

1:07:52

train to grow to lead

1:07:55

to Be able to be

1:07:57

part of this and part of someone else's success.

1:08:00

It's extremely for selling then so

1:08:02

for me that's been far and

1:08:04

away know close second the most

1:08:06

fun part of the job. For.

1:08:08

Me really is creating three G

1:08:10

capital was probably the most important.

1:08:13

Thing. I've been able to get involved

1:08:15

in in my career and I would

1:08:17

love this to perpetuate the from. And.

1:08:19

I Think Dead My cofounders a

1:08:22

have been a great inspiration that

1:08:24

way the whole lives and careers.

1:08:26

In giving people opportunity, allowing

1:08:29

them to. Chart. Their own

1:08:31

pass. Allowing them to

1:08:33

have the results and benefits in

1:08:35

the wealth creation associated with creating

1:08:38

their own path. And I

1:08:40

would love that to continue here, at which

1:08:42

he capital. For. I'd love to

1:08:44

ask you both a couple of fun

1:08:47

closing questions to what is your favorite

1:08:49

hobby or activity outside of work and

1:08:51

family? Alex My first. I.

1:08:53

Love Spear Phishing. Which.

1:08:56

Is some combination of fishing

1:08:58

and freediving. And.

1:09:01

Probably. Contrary to what

1:09:03

we do here. Is. Probably

1:09:06

the most efficient way of fishing

1:09:08

since. When. It's a lot

1:09:10

of fun! Nice

1:09:12

places, So. I spend a

1:09:14

lot of time doing that. Outside

1:09:16

of work and family exercise and

1:09:19

probably in order as most frequent

1:09:21

but least enjoy as I run,

1:09:23

play tennis and play basketball in

1:09:26

that frequency and it my enjoyment

1:09:28

is probably the inverse day. Know

1:09:30

what's one fact that you find

1:09:33

interesting that most people don't know

1:09:35

about you. I. Say.

1:09:38

I'm. Definitely more introverted, an

1:09:40

extrovert, which probably isn't so

1:09:42

common for former public company

1:09:44

Ceos. Alex. I. Recently

1:09:47

gone quite involved the for lunch would

1:09:49

be. His recent very few people

1:09:51

know about it or Foundation has only. Three.

1:09:54

Years. My. Wife's very involved

1:09:56

with maybe. We were lucky to recruit this

1:09:58

gentleman that was an M B A. They offered.

1:10:01

Went down to pursue. It's

1:10:03

basically education for young people

1:10:05

and mostly digital education meeting.

1:10:08

Programming. Computer Engineering all

1:10:10

the way from basic programming

1:10:13

to. College. To masters

1:10:15

to Phd programs, Have

1:10:17

about one hundred scholars now. It's small, But.

1:10:20

We have big dreams for it. And. Is a

1:10:22

lot of fun. A hopefully untied will become better

1:10:25

known. But. Your biggest pet

1:10:27

peeves. I'd say wanna things

1:10:29

it pry bothers me as if people aren't

1:10:31

working at a hundred and ten percent are

1:10:33

giving something they're off. We'd never really cared

1:10:36

if they the smartest t ball and will

1:10:38

always at least when it people were working

1:10:40

at one hundred percent and giving the project

1:10:42

their everything. In short of that that always

1:10:45

bothered me. Dinner which to people

1:10:47

have had the biggest impact on your

1:10:49

professional less. Book. Number

1:10:51

One Alex. He gave me

1:10:53

a shot at something way

1:10:56

way earlier then I probably

1:10:58

deserved. Certainly. At a

1:11:00

time maybe when others wouldn't give me

1:11:02

a shot. And then are three cofounders

1:11:04

as well. House. with

1:11:07

my tree cofounders. I

1:11:10

mean had a huge impact in my life as

1:11:12

well. Be found me in

1:11:14

his M B A program. Our alma

1:11:16

mater. And of big bets

1:11:18

on me this one of them tickly skate

1:11:20

to huge battle me on a railroad. Really

1:11:23

believed him. He didn't give a close personal

1:11:25

friend and. Marcel.

1:11:28

Charges be really touch huge past year

1:11:30

when it came to filter to cap

1:11:32

on when I'm forever grateful for know.

1:11:34

Alex? what's the best advice you ever

1:11:37

received? When.

1:11:39

You get into a new situation or a

1:11:41

new business. Try.

1:11:44

To find. Good.

1:11:46

Common sense things to do when.

1:11:49

Don't make. Sewage.

1:11:52

Business decisions about. Strategic.

1:11:56

Things. Before you take the

1:11:58

time to understand the business, Well,

1:12:01

I think to an extent we apply

1:12:03

that at Burger King and I think

1:12:05

it's something that really prevents big

1:12:08

mistakes and usually by

1:12:11

focusing on the common sense, things that

1:12:13

are opportunities to be harvested while you're

1:12:15

learning about the business. Someone

1:12:18

once told me, work really hard to put

1:12:20

yourself in a position to get lucky because

1:12:22

a little bit of luck involved in everything

1:12:24

but you up your odds, you have your

1:12:26

chances through your controllable lever of hard work.

1:12:29

Okay, guys, last one, what life lesson have

1:12:31

you learned that you wish you knew a

1:12:33

lot earlier in life? Daniel,

1:12:35

why don't you go ahead? Don't be

1:12:37

afraid to make a big bet on someone if

1:12:39

you really believe in that person. Even

1:12:42

if maybe that person isn't 100% ready

1:12:44

at the time, don't be afraid, make the bet. Alex?

1:12:47

Yeah, something that I've come to appreciate

1:12:50

at the stage of my career I'm

1:12:52

at now is to focus your

1:12:54

time on the things that make the most

1:12:56

difference. Because the amount of

1:12:58

noise in

1:13:00

your day-to-day, be it

1:13:02

on your personal life at times, be it

1:13:05

at your work is high. Alex,

1:13:08

Daniel, thanks so much for

1:13:10

sharing this incredible story about 3G and Burger

1:13:12

King. Thank you for having us. Thanks

1:13:14

for having us, Ted.

1:13:16

Thanks for listening to the show. To

1:13:18

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1:13:21

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1:13:35

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