After selling its Little Caesars and Meineke businesses in separate transactions within the past four months, Guernsey Holdings is back on the buy side. The California-based operator of multiple franchise brands acquired 20 Zaxby’s in South Carolina from longtime franchisees Jim and Britt Poston.
Mike James, founder and CEO of Guernsey, said he’d been looking for the right chicken concept to complement his portfolio of 98 Sonic restaurants and three Take 5 Oil locations for several years. Bert Lane, vice president of development for 922-unit Zaxby’s, sparked the interest when he made the move from Sonic owner Inspire Brands to the Athens, Georgia-based chain in early 2023.
“We looked at Goldman and what it’s done with the brand, the incredible leadership team that’s in place,” said James, in reference to the purchase of Zaxby’s in late 2020 by the Goldman Sachs Merchant Banking Division. Among the key hires since are Bernard Acoca as CEO, former McDonald’s and Papa Johns exec Sharlene Smith as chief operating officer and Chief Supply Chain Officer Carl Mount.
Add to that the high average unit volume—$2.66 million in 2022—and strong operational infrastructure, and James wanted in.
Mike James is CEO of Guernsey Holdings, a Sonic, Zaxby’s and Take 5 Oil Change franchisee.
Guernsey evaluated a handful of deals and found the right fit with Performance Management Group, which the Postons built up over 27 years in the system. Guernsey partnered with the existing management team of Candice Anderson and Chad Ham, who James said have a “meaningful ownership stake in the business.” Brokerage firm National Franchise Sales represented PMG on the sale.
“We were looking for a platform investment and it had the team, which frankly is more important,” said James. “It’s a tremendous team. Candice and Chad have been running this business for a very long time.”
Anderson, PMG’s vice president of administration, noted in the announcement of the sale that the Zaxby’s restaurants achieved “above average same-store sales growth” in recent years. Guernsey, which also signed a development agreement, brings capital to the table and the capabilities to continue growing the business, noted James.
“The development economics are incredibly accretive and we look forward to developing a significant number of new units—and continuing to acquire,” said James, who with friends Ryan Morita, Reed Melillo and Domenic Hjerpe founded Guernsey in 2021. James got his start in restaurants three years prior to launching the firm when he bought 21 Little Caesars stores in Michigan, an experience he said helped him learn the business from the ground up and now maintain a “laser focus” on the leading performance indicators in each of his brands.
“Our goal is to be in the top 10 percent of operations rankings in any brand we’re in,” he said. In Sonic, for example, speed of service and order accuracy are key points on the brand’s Balance Score Card. Guernsey, he noted, is the highest-ranked large franchisee, and its operating partners are involved at every level, something sellers like to see.
When Guernsey bought its first set of Sonic stores in 2021, James made sure to emphasize that approach to seller Penny Guthrie, who like the Postons had been a franchisee for decades. “They picked us because they knew we’d take care of the business,” he said. “Sellers, they become our business cards” for future deals “and plenty of buyers have poor track records. Word gets around quick.”
Guernsey is also not a private equity firm, which sellers and franchisors like, he pointed out. “We’re a long-term investor. We plan on staying in perpetuity,” he said, something important to brands wanting to cultivate a stable franchisee base of large owners as small ‘zees look to exit.
With patient capital, Guernsey takes a conservative approach to underwriting and its lending profile. MUFG Restaurant Finance handled underwriting on the Zaxby’s deal, and Guernsey works with MidCap Financial for its Sonic business, which James noted is about to grow more upon close of a 20-unit acquisition.