Dealmaker: John L. Murphy
The Deal: The Foley & Lardner attorney negotiated an unprecedented master franchise and joint venture deal that put one of his commercial clients in charge of franchised Burger King restaurants and the development of new ones throughout Central America. It is the first multinational agreement of its kind by Burger King Worldwide Inc., the Miami-based corporate parent of the quick-service restaurant chain.
Details: Murphy helped the Burger King franchisee BEBOCA Ltd. acquire exclusive master franchise rights in Central America and a bank financing commitment for future expansion in the region. He also negotiated a joint venture agreement that made BEBOCA majority owner and Burger King Worldwide minority owner of a joint venture company that holds the master franchise rights for the Burger King chain in six countries: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.
Burger King “had done these sorts of arrangements in individual markets, but they’d never done one in multiple countries,” said Murphy, of counsel in Foley’s Miami office.
Through its majority-owned joint venture with Burger King Worldwide, BEBOCA now has the exclusive right to open franchised Burger King locations in the six countries as well as a multi-year obligation to open an undisclosed number in the region.
He also negotiated a revolving line of bank credit from LAFISE, a bank with a Miami-based holding company, to finance the joint venture’s future acquisition and development of Burger King franchises in Central America. “It’s really to fund these [future] restaurants,” he said. To tap the revolving line, “they could buy a location or they could build one.”
BEBOCA is a closely held company with 48 franchised Burger King restaurants in Costa Rica and Panama. It also is a Burger King franchisee in Venezuela. “There are operating companies in each country and a holding company in the Cayman Islands,” Murphy said. “They have a history with Burger King.”
He said Burger King Worldwide formed BK Centroamerica Cayman Ltd. as a subsidiary and transferred the master franchise rights to the new company. Burger King also transferred most of the new company’s equity to BEBOCA, which transferred ownership of its 48 restaurants to the joint venture in exchange for majority ownership.
“The minute it was formed, Burger King got 100 percent,” Murphy said. “And then they transferred the majority [of the equity] in exchange for the transfer of the restaurants in Costa Rica and Panama.”
BK Centroamerica holds master franchise rights for 178 restaurants, including the 48 operated by BEBOCA, plus the exclusive right to open future ones. Two executives of Burger King Worldwide serve on the BK Centroamerica board: Jose Tomas, president of Latin America and the Caribbean, and Jonathan Weisleder, the finance and business development director in the same region.
Though no cash changed hands in either the master franchise agreement or the joint venture deal, the value of the 48 franchised restaurants that BEBOCA contributed to the joint venture probably exceeds $50 million, perhaps by a wide margin. According to Burger King Worldwide’s website, the cost of developing a new franchised Burger King restaurant “can range from $1.2 million to $2.2 million.”
BEBOCA and Burger King Worldwide closed the master franchise and joint venture agreements in November and it became effective Dec. 1. “The royalties are calculated monthly, so they wanted to start it at the beginning of a month,” Murphy said.
Their deal entitles BEBOCA to the bulk of the royalties that Central American franchisees pay to operate Burger King restaurants. Burger King Worldwide will collect an undisclosed minority percentage of royalty income from the six-country region. But Burger King Worldwide may collect a larger sum over the long term with BEBOCA in charge of procurement, marketing and development through the BK Centroamerica joint venture.
Murphy said Burger King Worldwide anticipates “they’re going to get more royalties” out of Central America while avoiding the ground game of finding franchisees, obtaining permits and opening restaurants there. “They don’t have to find franchisees because somebody they trust and have worked with before is going to take care of it,” he said.
Murphy said BEBOCA’s partners were “smart” to embrace the joint venture to share ownership of BK Centroamerica with Burger King Worldwide instead of paying cash for the master franchise rights.
“They’re giving Burger King every reason to support them,” he said. “If they had just given cash, then Burger King would have no incentives to share in their success.”
Reduced procurement costs are part of the promise of the joint venture. Instead of negotiating separately with vendors and suppliers, BEBOCA will practice regional procurement through BK Centroamerica. “One region-wide entity will be negotiating these agreements, and they’re hoping to get economies of scale,” Murphy said. “They now have that advantage on the supply-chain side to make sure they’re getting the best deal across the region.”
Quote: BEBOCA “had to promise that they would build a certain number of restaurants,” Murphy said. “They’re committed to a plan of aggressive growth in Central America.”
Background: Murphy, who is licensed to practice law in Florida and New York, is a member of Foley & Lardner’s Latin America practice.