Issue #52: The Roark Capital Empire

In 2017, four childhood friends in Los Angeles got together, one of whom happened to be trained as a chef by Thomas Keller at The French Laundry, and built a business that would change their lives. Combining the skyrocketing popularity of fried chicken across the United States with the value/simplicity/efficiency of In-N-Out Burger, Dave’s Hot Chicken was born. Starting as a street food stand, the first retail location opened in Fall 2019 after demand for the product grew. The menu is simple - tenders, sliders, and fries - available to your choice of spiciness level and in chicken or cauliflower form. Fast forward to 2025, it has 270 locations and is on pace to do $1B in system-wide sales, spurred by franchising. This would represent a year-over-year sales growth rate of ~100%. Not too shabby! When you start producing these kinds of numbers, that is when PE investors start to get interested in purchasing the company.

A couple of weeks ago, news broke that Roark Capital is acquiring Dave’s Hot Chicken for $1B and in return is receiving a majority share of the company. Apparently, Roark has been attempting to invest since 2021. The founders are planning on staying on in their current executive positions, and the company already has 1,000 units contracted to be built across the world. The plan is to use the capital to fuel growth, and so far the entire team is retained due to the bonuses that were shelled out and excitment for the future. Based on how similar style concepts, albeit in different food products, have scaled, it is not unreasonable to think there is a concrete pathway to 1,500 - 2,000 locations in the United States alone. Plus, with plans to increase via non-traditional retail establishments, like airports and college campuses, you can see how this can get big fast.

All this is exciting, but the past investor in me always wonders about the capital behind the investment. Who is Roark Capital? Where did they get $1B to invest in a hot chicken chain for the majority, but not complete ownership?

In 1995, Michael Leven and Neal Aronson founded U.S. Franchise Systems, in the hotel franchising space. This would prove to be Aronson’s first foray into the franchising world, but not his last. These two partners took a regional chain from 27 hotels to over 1,100 hotels, at the time the tenth largest hotel franchisor in the United States. That scale/success got the attention of the Pritzker family, which owned Hyatt Hotels, who bought these properties. Once that acquisition went through, Neal went off on his own to found Roark.

Based on his success in the franchise space, Roark continued to focus on that type of retail. Its investment thesis focuses on “in consumer and business service companies, with a specialization in franchise and franchise-like business models,“ AKA many familiar businesses you know well in the graphic at the top of this piece. The primary tool utilized for these investments is a leveraged buyout, which is when they borrow most of the money to fund the acquisition. To make a return for the investors, they either IPO the company on the stock exchange or sell it to another investment firm or restaurant operating group. This strategy clearly has worked, as they now have $40B under management to invest in these types of businesses, which has grown dramatically from a small fund in 2001.

Here is a selection of companies they have invested in over the years: Anytime Fitness, Carl’s Jr., Culver’s, Auntie Anne's, Carvel, Cinnabon, Jamba Juice, Moe's Southwest Grill, Schlotzsky's, Arby's, Buffalo Wild Wings, Sonic Drive-In, Jimmy John's, Dunkin', Baskin-Robbins, Massage Envy, Orangetheory Fitness, and more!

And the portfolio is primed to grow further, too. With the addition of Dave’s Hot Chicken, it adds another solid investment to an already solid portfolio. In 2024, Roark Capital chains did $52.2B in system-wide sales. For context, McDonald’s itself did $53.5B. Simultaneously shows how great McDonald’s is, as well as the scale of Roark. Even before the addition of Dave’s Hot Chicken, Roark was poised to surpass McDonald’s this year. Now, with the addition of $1B in Dave’s estimated 2025 sales, they should blow past it. Roark is certainly one to watch in the space, as they have been successfully investing for 20+ years now, and are certainly one of the leading investors in retail. I am excited to keep a closer eye on their investments going forward!

Additional Links:

1. Little Spoon, the baby and kids food brand, announced a partnership with emerging CPG brand Sauz to include their sauces in Little Spoon meals (read more here)

2. Outdoor Voices founder Ty Haney raises $11M for her second startup, this time in the loyalty software space (read more here)

3. Saks is no longer planning on closing more stores (read more here)

4. Chewy’s Q1 sales are up, margin is down (read more here)

5. Off price retailers continue to dominate and grow market share (read more here)

6. A deep dive into how the new CEO of Nike is attempting to turn the business around (read more here)

7. Nuuly, the startup rental company, now has the same number of subscribers as Rent The Runway, according to Wells Fargo analysts (read more here)

8. Leonard Lauder, the son of the founders of Estee Lauder, who worked there for 60 years, has passed away at age 92 (read more here)

9. Golden Corral has rebranded its fast-casual brand (read more here)

10. Dave & Busters recently implemented many changes, now it is rolling some back (read more here)

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