Since forming Modern Restaurant Concepts in 2019, Rob McColgan has been on the hunt for another better-for-you brand to add to his umbrella company, which so far consists of Modern Market Eatery and Lemonade. With backing from Butterfly Equity, the Los Angeles-based private equity firm that first invested in both brands, the group will acquire Qdoba Mexican Eats, a nearly 750-unit fast-casual franchise that Butterfly co-CEO Adam Waglay said has “a ton of upside.”
“We looked at multiple targets and the top two targets were in the Mexican space,” said Waglay, who called out the attractive return on investment and lower food costs of Qdoba. And while the price—Butterfly is buying Qdoba from Apollo Global Management—and other terms of the transaction weren’t disclosed, he noted “a big reason we got excited is we feel we got it at an incredible value.”
Adam Waglay is the co-CEO of Butterfly Equity, a Los Angeles-based private equity firm that invested in Modern Market Eatery, Lemonade and now Qdoba in its acquisition from Apollo Global Management.
Qdoba hit $921 million in systemwide sales in 2021, according to the Franchise Times Top 500 database. The deal will bring MRC’s platform to about 800 locations in every U.S. state. As part of the transaction, expected to close in October, King Street Capital Management, a global alternative asset manager, is investing alongside Butterfly.
“You gain so much through scale in the restaurant industry. That’s why there’s a lot of publicly traded companies that have multiple brands,” said McColgan, who becomes co-CEO of the group and will lead Modern Market and Lemonade while Qdoba Chief Executive Keith Guilbault will continue with that brand and be co-CEO of MRC.
“You gain a lot of efficiencies by being able to have shared services in several departments. What works for one brand often works for another brand.”
McColgan said Qdoba’s flavorful menu, positive guest experience and “real uniqueness in the Mexican fast casual space” stood out when evaluating possible acquisition targets.
Rob McColgan cofounded Modern Market Eatery in 2008, then formed better-for-you umbrella company Modern Restaurant Concepts in 2019 when he acquired Lemonade.
McColgan cofounded Modern Market Eatery in 2008 with the mission to create a restaurant that customers could eat at every day and feel better after their meals. “That comes down to the ingredients, lots of prep and control of what gets put in the food,” he said. “Qdoba does a ton of prep and fresh cooking in the restaurant every day, which was the most important factor—right up there with a people-driven culture.”
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San Diego-based Qdoba’s franchising network and expertise also attracted McColgan, who hopes to expand all three brands through franchise, company and licensed units. “Being able to see how a successful franchisor like Qdoba already does it is going to be a great part of this deal,” he added. Earlier this year, Qdoba announced its largest multi-unit agreement in company history, a deal with a former Dunkin’ franchisee to bring 30 units to South Florida.
Modern Market, by contrast, has 24 company restaurants, though it recently signed its first franchise agreement, a 40-unit deal to bring the brand to seven states. A fast-casual concept with a health bent, Lemonade has 20 units in California.
Food sector specialty at Butterfly
Waglay and Butterfly co-CEO Dustin Beck formed their firm in 2016 after meeting about a decade prior at Goldman Sachs. It was in between, while working at KKR on its consumer retail private equity team and focusing on the food sector, that Waglay said he thought, “Why aren’t there more food-dedicated funds?”
In June 2016, Butterfly invested in Lemonade alongside KKR, and in 2018 acquired Modern Market. Other companies in its portfolio include Pacifico Aquaculture, a producer of ocean-raised striped bass, food and beverage company Bolthouse Farms, and egg producer Pete and Gerry’s Organics, among others. It closed this month on a $1 billion sophomore fund and now has nearly $4 billion in assets under management.
“We want to be a full spectrum investor,” said Waglay, and he expects franchising to be a strong growth vehicle for the company.
Beck noted their aim is to be more than a financial partner by also providing strategic and operational insight. “We actually have more operators than investors on the team,” he said, one of them being Paulo Marchesan, who operated a multi-unit Haagen-Dazs franchise and from 2011 to 2017 was a senior executive at Restaurant Brands International where he focused on its Burger King business.
“We’ve built our entire business and team on where can the operations team add value,” said Beck. With Qdoba, Waglay said he sees opportunities to invest more in marketing to drive traffic and help the brand maximize its off-premises channels.
Full circle moment
“It’s kind of amazing,” McColgan said as he reminisced about his first Qdoba dining experience nearly 15 years ago. Formerly an equities trader on the New York Stock Exchange and an independent wealth adviser, McColgan left Wall Street in 2008 after about six years to create Modern Market Eatery.
On the first trip out to Colorado before he and his wife moved there, they had lunch at the Qdoba in the Denver Tech Center and talked about what was going to change after making the leap into entrepreneurship.
“Now to look back almost 15 years later and to have started an amazing concept in Modern Market that we’re very proud of, then to also extend that sort of overall mission to create great food with great ingredients and bring it to as many people as possible—and to know we’re going to be working on a brand as great as Qdoba—is just fantastic,” he said.