Roark Acquires Another Fast Food Chain, Dave’s Hot Chicken

If it’s a franchise, there’s a good chance one private equity firm, Roark Capital, owns it. Named after the main character in Ayn Rand’s “The Fountainhead,” Roark Capital has made millions buying up franchise brands in many industries from maid services to autobody shops. Roark specializes in restaurants and owns Dunkin’, Subway, Jimmy Johns, Arby’s, Sonic, Hardee’s, Cinnabon, Auntie Anne’s, Jamba Juice, and Buffalo Wild Wings, among other chains. Last week it added the trendy Nashville-style spicy chicken chain, Dave’s Hot Chicken, to its portfolio for $1 billion.

This deal represents a broader trend of private equity firms buying up franchise businesses. Franchising generates steady royalty fees for private equity owners while shielding them from day-to-day management duties and labor liabilities. While private equity ownership can help new brands like Dave’s Hot Chicken expand, it can also exacerbate some of the most harmful features of the franchising model, namely, the pressure it puts on franchise operators to lower wages or cut hours for workers. Roark chains employ 1.4 million workers and the firm uses its dominance in the restaurant industry to lobby against labor protections and a higher minimum wage. 

When a private equity firm like Roark buys a business like Dave’s Hot Chicken, it isn’t interested in owning physical restaurants, it’s interested in owning the brand. Franchisors make money by charging licensing fees to the independent franchisees that own and operate their many locations. Roark says it will help Dave’s Hot Chicken expand by streamlining backend systems such as ordering food and constructing new locations. Independent franchisees share in the expansion costs and every new location generates more franchising fees for Roark.

The private equity business model relies on taking out debt to buy companies, restructuring them, and reselling them at a profit. Steady franchise fees can help finance a new kind of debt called whole business securitization. Basically, private equity firms put all their money from franchise royalties into a special legal entity designed to protect certain assets if the parent company goes bankrupt. Then they take out debt based on the revenue of this new entity to get a lower interest rate. Roark used nearly $5 billion in whole business securitization debt to acquire its largest franchise, Subway, in 2024.

Roark’s acquisition of Dave’s Hot Chicken is smaller by comparison and the terms of the deal have not been disclosed, so we do not know how much if any debt financing was involved.

Private equity firms claim that their restructuring helps the businesses they own.  For instance, the CEO of Dave’s Hot Chicken says Roark’s purchasing systems can lower franchisees’ cost of goods. But often private equity companies load franchises with new debt payments or pull out cash to pay investors, as Roark did with Arby’s in 2015.  

These financial pressures exacerbate the restraints that franchisees already face. Changes in antitrust law have allowed franchisors to enact tighter contractual control over their franchisees. The franchisor sets rules for how their franchisees must operate, including the ingredients they must buy, the technology they must use, or when they must be open.

Research by Open Markets chief economist, Brian Callaci, finds that all these restraints compel franchisees to compete by cutting labor costs because they don’t have many other choices to make. Studies show that franchised fast-food locations offer lower wages and have more labor violations than restaurants directly owned by the parent company.

Roark prides itself in leveraging less debt than other private equity firms, yet it still has a particularly poor labor track record. An analysis by the Private Equity Stakeholder Project found that Roark had the highest rate of wage and hour violations out of the top 11 private equity firms with the highest number of employees in the U.S.

Even though private equity firms create the conditions that push franchisees to cheat workers, they avoid liability for labor violations because franchisees are technically the employers. “Private equity firms really like the franchise model because it allows them to escape some accountability,” says Azani Creeks, senior researcher at the Private Equity Stakeholder Project.

The Biden administration passed a rule to expand the definition of a joint employer to make franchisors more liable for labor violations at their franchisees, however, the rule faces legal challenges and threats from the Trump administration.

Roark opposes this joint employer rule and other labor standards. In a 2021 letter to its employees and franchisees, Roark bragged about successfully lobbying to keep the Raise the Wage Act out of the Biden administration’s COVID-19 relief bill, which would have raised the federal minimum wage to $15 per hour. Roark also opposes the PRO Act, which would restore many union rights. Roark spent $480,000 lobbying in 2024 and its industry dominance boosts its political influence.

“I do think their concentration in this industry, specifically gives, them a lot of power and a lot of say,” says Creeks.