Pizza Hut is reportedly in talks with a private-equity firm on a sale. | Photo: Shutterstock.
According to multiple recent reports, Yum Brands has entered into exclusive talks with LongRange Capital on a sale of Pizza Hut. Both Bloomberg and Reuters reported about negotiations.
The reports described the timeline in “weeks” and provided the customary caveat that there is no guarantee a deal will be reached, which is probably important because no major pizza chain has been sold yet despite numerous reports of high-level talks.
Still, if the deal has reached this stage, then it seems that the sale process for Pizza Hut is headed toward a conclusion of a strategic review process that was announced seven months ago.
Yum selling Pizza Hut is a big deal. The pizza chain known for its Tiffany lamps and its Book-It program was an original part of the company. But Pizza Hut’s decades-long struggles and Yum’s increasing focus on KFC international and Taco Bell made the pizza chain expendable.
LongRange in theory sees a turnaround opportunity. The private-equity firm was founded in 2019 and has five major investments: The synthetic diamond company US Synthetic, the casket maker Batesville, convenience food company Bakkavor, ski resort company Alpin Unlimited and the fitness chain 24 Hour Fitness.
The firm has about $1.7 billion in capital under management and says that it takes a longer-term approach to investing, focusing on operational and strategic improvements to generate a return, rather than financial engineering.
If that is indeed the case here, then that would be good news for Pizza Hut over the long term.
Pizza Hut is in a struggling sector. The pizza business has been weak for the past four years as some consumers struggled while others shifted more delivery business to third-party aggregators.
Yet it does deliver hot food to consumers at a time when consumers want hot food delivered. Pizza Hut also operates nearly 14,000 locations outside the U.S., which is not nothing.
LongRange itself does not have a restaurant chain among its holdings, but its founder, Bob Berlin, does have some very notable experience in the restaurant space.
Berlin was the managing director with the Boston-based hedge fund The Baupost Group, which in 2011 invested in Arby’s, getting in on the ground floor of a remarkable turnaround for the fast-food chain.
Arby’s may be a worthwhile comparison in many respects. The brand back in 2011 was struggling with burdensome leases, thanks to the company’s acquisition of a large franchisee.
The company kept its corporate stores and invested heavily in marketing, generating years of strong growth behind its “We have the meats” campaign. That ultimately fueled the creation of Inspire Brands, which is set to have the largest IPO in restaurant industry history this year.
To be sure, Pizza Hut is a tough turnaround. The company finished 1999 with more than 8,000 domestic locations, most of which were classic “red roof” full-service locations. It shifted to takeout and delivery. But by the end of last year it had just over 6,300 restaurants. System sales last year were $300 million less than they were in 2005.
It will likely finish 2026 as the country’s third-largest pizza chain after dominating the business for four decades. And that international business? Its growth stopped last year, so the Pizza Hut turnaround isn’t just stateside.
That kind of challenging turnaround often attracts private-equity firms that see potential in financial engineering as owners look to generate a return by cutting costs, loading a company with debt and paying itself dividends.
But Pizza Hut needs investment to evolve the brand for a new world, and that takes time. If LongRange has that kind of patience—assuming it is successful in buying Pizza Hut, that is—then the brand has a chance. You can book it.
