Burger King Operator Sun Holdings Targets Uncle Julio's Acquisition Amid Debt Challenges

Sun Holdings, a major Burger King operator, aims to acquire Uncle Julio's by purchasing its debt at a discount, sources say.

Sun Holdings' Acquisition Strategy

Sun Holdings is attempting to acquire Uncle Julio's, a struggling casual dining business. Sun Holdings owns Taco Bueno and massively operates Burger King and Popeyes.

Restaurant Business has been informed by many people familiar with the matter that the firm based in Farmers Branch, Texas, has acquired the debt owed by Uncle Julio's Restaurant Group at a discount on the secondary market.

By doing so, Sun Holdings makes itself an attractive acquisition target, possibly via a debt-for-equity swap. However, Uncle Julio's could end up declaring bankruptcy as a result.

Trends in Debt Market Transactions

Brand acquirers are increasingly frequenting the secondary debt markets. Companies that are having trouble paying their debts have been the targets of lenders selling their debt to them, usually at a discount compared to its face value.

In such a situation, the power lies with the loan holder, as the business's assets are usually used to secure the obligation. If a borrower defaults, the lender might foreclose on the property or demand repayment.

Lenders have been increasingly opting to sell struggling companies' loans on the secondary market instead of going through bankruptcy, which allows them to sidestep the whole procedure. Lenders may opt to sell their debt to a firm if they determine that the brand's value isn't sufficient to cover the amount owed.

By purchasing the debt at a discount, investors in these ventures can gain a head start. To beat those investors' bids, other bidders would need to pay more than the debt's worth.

Implications for Uncle Julio's

According to Nation's Restaurant News, L. Catterton purchased Uncle Julio in 2017. The private equity firm had 29 sites and was investing in several restaurant chains, including Anthony's Coal-Fired Pizza.

Last year, Uncle Julio appointed Scott Lawton as CEO. Bartaco is another idea of L. Catterton, and Lawton is involved with it as both a co-founder and CEO. There was talk at the time that this would set Uncle Julio's on a growth spurt.

In addition to its flagship polished-casual Mexican restaurant chain, Uncle Julio's maintains the four-unit Hacienda Colorado and a virtual brand known as Savage Burrito. At the end of 2023, Uncle Julio's had 37 restaurants with higher volume. The average restaurant's annual sales are $6.7 million.

In March, the organization discontinued operations at one of its Chicago facilities. The Technomic Top 500 Chain Restaurant Report states that the system's overall sales for the year amounted to $247.5 million, representing a 1.8% increase from 2022.

Compared to other classic casual-dining Mexican concepts, Uncle Julio's has seen slightly better system sales growth over the last five years, at 2.9% on average.

Uncle Julio's private-equity owner, L Catterton, and Sun Holdings declined to comment.

Photo: Uncle Julios/YouTube