Burger King

A friend – Tom Ball – just sent me this from The Deal. Seems that the EBIDTA multiple was 7.3 – that’s very high. Still, its less than McDonalds and Wendy’s are trading at.

It’ll be interesting to watch.

“But for the buyer, opportunity abounds. Rival McDonald’s Corp. is trading at a 10 times Ebitda multiple and Wendy’s International Inc. is trading at 9.5 times. The TPG group is paying about a 7.3 times Ebitda multiple based on $310 million in Ebitda, or 30% less than the market multiples of Burger King’s competitors.

Still, Burger King is a challenge. The main question is the health of the franchisees that own about 90% of Burger King’s 11,435 restaurants and provide its revenue stream through royalty fees. Several large Burger King franchisees have been struggling to remain solvent after Diageo neglected the brand, letting it slip further behind McDonald’s, several sources said.

If some of these franchisees ã including the largest, AmeriKing, based in Westchester, Ill., which is going through a restructuring ã file for bankruptcy, Burger King will need to either buy them, which would be expensive, or shut them down, reducing royalty payments. “

9:23:05 PM

Just found out that Burger King sales are about $12.5 billion [11,500 stores with an average of $1.1m sales per year]. and the cash componenet of the acquisition for $2.26bn was as little as $600m. Not bad eh. $600mn cash for a $12.6bn revenue operation.

Sure, there is lots of work to be done but hey – nothing is for free.

9:38:01 AM  

Thursday, 25 July, 2002, 13:39 GMT 14:39 UK

Diageo agrees Burger King sale

The sale had been expected  

Diageo – the global food and drinks conglomerate [with a portfolio that includes Johnny Walker whisky, Smirnoff vodka and Bailey’s Irish Cream liqueur] has sold Burger King to a group of Venture Capitalists. Interesting. This really throws a light on two phenomenon.

Firstly – we are in a market where the pendulum has swung so far in the direction of value that there are a lot of cheap pickings for those with cash.

Secondly – that Venture capitalists [ in this case a group made up of venture capitalist firms Texas Pacific and Bain Capital, together with private equity group Goldman Sachs Capital Partners] are now players in buy-outs.

The price paid was $2.26bn , and probably leveraged with 50%+ debt.

I have no idea what Burger Kings cash flow annually is but my guess is that this price is less than 1 x revenue and probably around 4 x EBIDTA. The BBC article that this was reported in says that “The sale is dependent on the chain meeting certain sales targets in its financial year to 30 June 2002.”  Good for the buyers.

It was also reported that “The market welcomed news of the sale with shares up 5% or 35 pence to 716p. This gives the group a market value of £23bn. “ Good for the sellers. A win-win deal.

How many other companies are nurturing former acquisitions that they could and should dispose of, and how many bargains does that mean there are out there. Answer – lots.

The M&A guys are going to have a lot of work during the next couple of years. If the Internet period was “irrational exhuberance” we are now in the era of “extraordinary value”. You read it here first!

Lets all go get cash!

9:08:10 AM


I love this John Dvorak comment:


Although accountants are needed in any business, they’re supposed to advise the company, not run it. If a CEO doesn’t want to listen to the CFO and goes off spending like crazy, finally going broke, that’s the CEO’s fault. And if the CEO lets the CFO run the company into the ground because of overly conservative ideas that do nothing but barely keep the company afloat, that’s also the CEO’s fault. Since the CEO is always going to be blamed, at least the CEO should make his or her own mistakes. What I’m seeing more and more are CEOs who have lost confidence in their own companies and have turned over all the thinking to the CFOs. Most real marketing people have been replaced with CFO clones. The CFOs then bring in more people who think like them (one bean, two beans, three beans). Everyone is now talking ROI. Hey, sell the company and buy municipal bonds if you don’t want to take risks or do anything. Hello… hello? Earth to Silicon Valley!

12:28:27 PM

Weblog is a great tool

I just ended a call and a series of emails with a journalist from the South China Morning Post. She was very well informed. It’s amazing how much work this WebLog does for me. Journalists are very well informed and ask great questions. The message is already understood.

10:48:01 PM

Article of the Week



RealNames’ fall may doom keywords

Today's News

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All of today’s news

By Carolyn Duffy Marsan
Network World, 05/27/02

When keywords became available in Microsoft’s Internet Explorer two years ago, they offered companies a simpler way for their customers to find information about their products and services on the Web.

Now the recent closure of RealNames, the Internet’s premier provider of keywords, leaves the technology’s future in doubt even as the Internet Engineering Task Force (IETF) is finalizing a standard for resolving keywords.

Major corporations such as IBM, eBay, Ford, Bank of America and Xerox use RealNames’ keyword service, which will remain operational until June 28, to help customers find product information on their Web sites. For example, a user could type the keyword “ThinkPad” in the browser command line and go directly to the appropriate page of IBM’s Web site without needing to know the corresponding URL.


However, the technology’s greatest promise was in resolving queries for non-English language domain names, especially in such complex languages as Arabic, Japanese, Chinese and Korean. Among the Asian companies that used RealNames’ keyword service to ease user navigation were Sony, Nomura Security and Haier Group.

“The closure of RealNames, the company, is fundamentally a measure of business-level process, not a statement about keyword technologies,” says Leslie Daigle, chair of the Internet Architecture Board and leader of the IETF’s keyword resolution effort. “It has more to do with decisions made in various boardrooms than whether people want, or will supply, keyword services.”

RealNames ceased operations May 13 after Microsoft chose not to renew a contract to distribute the RealNames keyword service with its browser. Microsoft made this decision even though it owns 20% of RealNames, which is in the process of liquidating assets.

Also losing out in this surprise turn of events is VeriSign, which owns 10% of RealNames and was a reseller of its keywords. VeriSign plans to write off an $18 million investment in RealNames and must come up with another solution for resolving the 1 million foreign-language domain names it has registered.

RealNames founder and CEO Keith Teare says the company was at a break-even point and has $12 million in cash. The company owes Microsoft approximately $25 million and plans to sell its physical and technological assets related to directory services, multilingual domain name resolution and messaging services.

“We put all our eggs in one basket very consciously,” Teare says. “With Microsoft as a 20% shareholder and with significant revenue share going to Microsoft, we thought it was a pretty safe basket.”

RealNames had sold more than 200,000 brand-name keywords. During March, RealNames’ keywords were accessed 187 million times, company officials say.

“Keyword technology is being killed by Microsoft, and it has absolutely no chance of being re-created unless they’re prepared to help,” Teare says. “Their browser is used by a half-billion people, and it sits between the user and the content. If their applications don’t support keywords, then keywords don’t exist.”

Keywords are “the human-facing component that the geeks who built the Internet forgot to make,” says Michael Mealling, an engineer with VeriSign who helped author several IETF documents related to keyword resolution. “The Internet really became popular before we finished the thing. And it was used primarily by geeks who didn’t have a problem with [long HTTP addresses]. So now that our grandmothers want to use it, we have to build that human component into it.”

The demise of RealNames leaves only a few small keyword providers standing: the U.K.’s CommonName, a Chinese portal-based keyword system called 3721 and a Korean-language service called Netpia. Meanwhile, AOL Time Warner offers a proprietary keyword service to its users.

Companies spent $500 per year to register a RealNames keyword, with volume discounts available for large customers such as eBay, which had about 3,000 keywords in the RealNames system. These large customers paid RealNames from $50,000 to $500,000 per year.

Supporters of keyword technology say RealNames failed in part because it was a closed, proprietary service offered by a single company.

Ironically, RealNames is closing just as the IETF appears ready to approve a standard for keyword resolution. RealNames engineers helped create the standard, which is called the Common Name Resolution Protocol (CNRP). Daigle, who served as chair of the CNRP working group, says the IETF’s leadership has approved the CNRP documents and will publish them soon.

Whether a new player will enter the keyword market remains to be seen. RealNames executives were angered last week by the discovery that Microsoft recently was awarded its own patent for a keyword system. Microsoft declined to comment about the patent it has on keywords.

Some observers predict new keyword services will be hard to finance in today’s economic climate.

“Keywords is another layer above the basic resolution. It is an option. So the key question is: Do we really need it?” asks Marc Blanchet, co-chair of the IETF’s Internationalized Domain Name working group and an engineer with Viagenie. “This is a great technology but . . . some technologies that are not essential sometimes never get the market [support].”


Location: San Carlos, Calif.
Founded: 1997
Original name: Central Corp.
Products: Keyword registration and resolution service.
CEO: Keith Teare
Financing: Venture capital raised $133M in four rounds; Microsoft 20%, VeriSign 10%.
Status: Ceased operations, liquidating assets.

Related links

Contact Senior Editor Carolyn Duffy Marsan

Other recent articles by Marsan

10:08:14 PM