Turnarounds

Sentinel was introduced to Falcon by a specialty finance company that securitized and sold QSR loans to institutional investors. The specialty finance company had provided debt financing to Falcon’s former owners to purchase 97 Church’s Chicken restaurants from the franchisor. Shortly thereafter, Falcon’s business performance began to rapidly deteriorate. With a payment default imminent, the finance company foreclosed on the loan.

After foreclosure, the prior CEO was replaced with a turnaround consultant who staunched the cash flow losses. With Falcon operating at breakeven, the finance company—whose primary business was debt financing for restaurants, not owning them—decided to sell the business. As an ongoing lender, the finance company sought a trustworthy buyer with a proven QSR track record.

• To acquire the largest block of stores in the Church’s system at good value
• To execute a turnaround that would restore restaurant profitability to levels enjoyed when the franchisor owned the business
• To build additional Church’s Chicken restaurants in existing markets

Transitioned to New CEO: Sentinel recruited CEO Aslam Khan, previously COO of another Church’s Chicken franchisee. Considered one of Church’s Chicken system’s best operators, Mr. Khan had an impressive 11-year record that included leading the turnaround of a 48-unit franchisee after it was purchased out of bankruptcy by a private investor. Because he did not own any equity, Mr. Khan was keenly interested in the Falcon opportunity.

Executed Turnaround: Following the closing, Falcon relocated its headquarters to Chicago, close to most of its restaurants. Under Mr. Khan’s leadership, Falcon recruited a new senior management team, replaced most of its store managers, and upgraded its financial and systems capabilities. Food and labor costs were quickly brought into line, and the customer experience improved dramatically.

Stabilized and Grew Business: Within months of the closing, comparable restaurant sales growth reached double-digit rates and profitability climbed rapidly. With the business stabilized, Falcon began a capital investment program of reimaging existing restaurants and building new restaurants.

After holding the investment for more than five years and having accomplished its investment objectives, Sentinel sold Falcon to its CEO and management team in a recapitalization transaction. Under the management team Sentinel helped build, Falcon has continued to grow and today operates more than 175 restaurants.