The Hooters restaurant chain, known for its scantily clad waitresses, has been sold to a group of investors led by a Coastal Carolina University alumnus.
The sale means that for the first time in more than two decades, Horry County's Brooks family will not own Hooters of America.
Charlotte-based Chanticleer Holdings LLC and a consortium of investors bought the privately owned chain for an undisclosed sum, completing the transaction by Jan. 24, according to a Hooters press release.
Bob Brooks, a Loris native, bought Hooters in 1984 when it only had two locations and expanded it into a global chain. Brooks died in 2006 in Myrtle Beach, leaving his ownership of Hooters to his son, current Hooters CEO Coby Brooks, and an underage daughter. The chain was sold as part of efforts to settle Brooks' estate.
A legal battle that began in Horry County Probate Court in December between Chanticleer and a rival bidder appears set to continue, but it did not stop the sale.
Brooks' sister Olis Jayroe said she hopes the sale of the chain leads to a faster settlement of the estate.
"I just hope they finalize [the estate] soon, and it's worked out," said Jayroe, a Myrtle Beach resident. "I'm glad to see that it's about to come to fruition and it will be something behind us."
The deal
The sale was predicated by a sweetheart deal struck between Chanticleer CEO Mike Pruitt and Bob Brooks, said Dave Schweiger, a professor specializing in mergers and acquisitions at University of South Carolina's Moore School of Business.
Pruitt first met Brooks in 2002 after Pruitt made a donation to CCU to build a locker room for the college's baseball team, Pruitt said on Monday. Brooks was also a major donor to the university, and Coastal's football stadium is named after him. The two became friends as Pruitt made frequent trips to Coastal and became increasingly involved in alumni life.
"We became very good friends and almost like a mentor-mentee relationship," Pruitt said.
The friendship lead to a business deal. Brooks granted Chanticleer a "right of first refusal" in a $5 million loan agreement, signed two months prior to his death. The 2006 loan funded Hooters Air, a Myrtle-beach based airline, which later failed.
"He made it clear he did not want Hooters to be sold, but his fear was that if something were to happen to him, there could be fighting amongst the heirs," Pruitt said. "There was this right so he knew it had a chance of ending up in friendly hands."
A right of first refusal allowed Chanticleer to block any proposed sale of Hooters, provided it was willing to buy the company on similar terms as a rival purchaser.
That deal set up the sale, which was completed in January, Schweiger said.
"They were either very lucky or very shrewd when Brooks and Pruitt struck this deal," he said.
Chanticleer exercised its right of first refusal to block the restaurant chain's sale to New York-based Wellspring Capital Management, which had spent nearly a year pursuing Hooters in multiple rounds of bidding. Chanticleer faxed its statement to Horry County Probate Court saying it wished to buy Hooter roughly an hour before the right would have expired on Dec. 1.
A suit between Hooters and Wellspring was later taken up under seal in Delaware, but that proceeding did not stop Chanticleer's acquisition.
Wellspring sent a notice to Chanticleer and the Brooks estate that it plans to file another lawsuit over the sale, continuing the legal battle, Pruitt said.
The future of Hooters
Despite the potential for further litigation, Chanticleer is already planning to further expand the chain, Pruitt said.
"My partners and I can only hope that we can take the legacy he created and make it even better than [it is] today," he said.
As part of the sale, Hooters also acquired its largest franchise holder, Texas Wings, giving the chain 161 wholly-owned locations in addition to about 300 franchisees, according to a company press release. Chanticleer did not put up the largest stake to buy Hooters, but Pruitt declined to name his partners in the purchase. Pruitt will join the Hooters board of directors to represent the new owners.
Pruitt said he predicts there will be more Hooters locations overall within in the next 12 months.
That could include an increase in the number of restaurants in Myrtle Beach, Pruitt said. Hooters operates two wholly-owned locations in Myrtle Beach, although it previously had restaurants in Murrells Inlet and North Myrtle Beach that could be reopened, he said.
Coby Brooks, who could not be reached for comment, will stay on as CEO, Pruitt said.
In the Hooters press release that announced the sale on Jan. 24, Coby Brooks released a written statement focusing on his father's role in growing the company.
"My father built a great company. He was a visionary filled with a tremendous entrepreneurial spirit," Coby Brooks said. "However, he was often limited by a lack of financial resources. Since his passing, the requirements of his estate have limited us even further. While it is bittersweet to see the end of my family's ownership of the company, I know this new investment will put us in a position to grow rapidly and fully realize the potential of the Hooters brand."
The acquisition vaults a relative unknown, Chanticleer Holdings, to the head of a multinational company, Schweiger said. Chanticleer's only known restaurant experience is its ownership stake in three Hooters locations in South Africa.
"What I'm trying to figure out is how Chanticleer is going to make money on this kind of thing," Schweiger said.
Chanticleer could bring in new discipline and close down some less profitable locations, he said. Hooters might need to improve its cash flow so that the new owners see more of a return on their investment, Schweiger said. It's hard to know what will be done since the deals were mostly struck behind closed doors, he said.
"It's yet to be seen under the new ownership what they can really do with this brand and whether they can leverage the business to grow it," Schweiger said.
Contact JAKE SPRING at 626-0310 or follow him at Twitter.com/TSN_JakeSpring.
