Longreach invests in Wendy's Japan to build greater synergies withhomegrown franchises

Expanding a budget-priced restaurant chain across an expensive realestate market like Japan is not for the faint of heart. LongreachGroup, however, has identified a rare inroad into the country's fast-food and fast-casual dining sector through a two-part transaction thatgives the firm an immediately scalable platform and a unique nichein this competitive market.

The North Asia-focused GP - which targets buyouts in the range of$30-200 million - is acquiring a majority stake in Wendy's Japan aspart of a deal that will see the hamburger restaurant merged with amore locally integrated chain, First Kitchen. A subsidiary of SuntoryHoldings, First Kitchen is a hamburger restaurant that diversified intopizza, pasta and fried chicken. Suntory was no longer growing thebrand, however, and therefore made the asset available for theLongreach-Wendy's approach.

The plan is to leverage First Kitchen's long-term leases at 136established locations to create a new play in Japan's restaurantspace, fusing the Japan-oriented tastes of First Kitchen with the all-Western offering at Wendy's. This locally sensitive co-brandingstrategy has already been validated at two "Wendy's First Kitchen"test locations in Tokyo and is expected to be rolled out nationwide inthe coming years.

"This is an example of how we are bringing our ‘narrow and deep'international strategy to life by initially focusing on four key markets -Japan, India, Brazil and the Middle East - where we seeconsiderable upside potential over the next few years," says BobWright, an executive vice president at Wendy's. "We believe our bestapproach is to support our franchisees in building Wendy's brandstrength in local markets and enhancing the economic model of theirrestaurants."

Wendy's exited the Japanese market in late 2009, closing 71restaurants after deciding not to renew its local franchise agreement.When Japan's Higa Industries, the current owner, revived the chaintwo years later, it planned to expand to 100 outlets. However, highreal estate costs, cultural challenges related to the menu, and fiercecompetition from entrenched hamburger rivals kept this plan in check.Wendy's currently has only one location in Japan.

Higa president Ernie Higa - who brought Domino's Pizza to Japanbefore its sale to Bain Capital in 2010 - is expected to be avaluable US contact for Longreach as it institutionalizes theleadership bench, deepens execution power and manages exclusiveJapanese franchise rights for the global chain.

He will also function as the firm's local partner, after building lines ofcommunication between the deal's various parties, as Wright notes."This deal would not have been possible without the vision anddedication of Ernie Higa and the Wendy's Japan team, whounderstand the importance of great customer service, continuousinnovation and playing a different game when competing against well-entrenched restaurant competitors."

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http://www.avcj.com/avcj/official-record/3000618/deal-focus-longreach-s-fast-track-japan-burger-play