Brad Roemer is a real estate analyst out of the San Francisco Bay Area. He’s got over ten years of experience under his belt: first as a distressed-debt real estate analyst at REO Homes, then, for the better part of his career, as an Associate at RLO Development. In his most recent role, Brad Roemer analyses potential value-add investment and ground-up development opportunities. He also does a little bit of business development.

 

Although known for his real estate investment prowess, Roemer also has some knowledge of the fast food industry. McDonald’s, after all, is a real estate business (go see the movie The Founder). And there are other like it. So without further ado we will let Mr. Roemer present his case study.

 

Krispy Kreme went from trouble, to a $1.3 Billion acquisition and I’m gonna tell you how it happened.

 

1937, Where It All Began

 

It all got started in 1937, when Vernon Rudolph founded Krispy Kreme. He discovered a recipe for yeast dough donuts, which was a new innovation in donut technology at the time. The yeast dough donuts were lighter and fluffier because the yeast would rise, unlike donuts from other confectionaries.

 

The company grew, and had a good run for many years, and was a bought and sold off for a few times to parent companies. One notable acquisition was in 1976, by the food conglomerate Batrice. But then Beatrice started doing badly and it hurt the valuation of Krispy Kreme, so the management got some money together and bought Krispy Kreme back. Which brings us to the IPO.

 

2000 IPO

 

Up until the IPO the company has been doing pretty well. Then they hired a new CEO, Scott Livingood. This is where the trouble started. Initially, the IPO got off to a great start.

The trouble started in the mid 2004 when the company was investigated by the SEC. Scott Livingood had arranged the accounting such that the company would always meet their quarterly projections falsely by stuffing the channel. One of the ways the parent company was would make money according to its business model was to sell supplies to the franchisees. That Livingood did was send the supplied to the franchisees even when they didn’t order them, and write it off as a revenue. If it doesn’t sound right, that’s because it’s fraudulent, and only a matter of time before its discovered.

 

By the end of 2005, the stock was crashing down like a rock, and Scott Livingood was fired.

 

The Recovery

 

New CEOs were rotated in and inherited the issue, but eventually the company recovered. The real uplift came when James Morgan was brought in. Among other things he stopped the company from bleeding money and expanded it to an international presence. Finally, having proven itself, the company was acquired by private equity firm Jab-Beech in 2016.

Comments are closed.

  • Partner links