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San Diego-based Mexican eatery Qdoba sold

San Diego-based Mexican eatery Qdoba has swapped one private equity owner for another, with Apollo Management Group agreeing to sell the restaurant chain to the parent company of the Modern Market and Lemonade brands.

Qdoba’s buyer, Butterfly Equity of Los Angeles, declined to reveal the purchase price. But the deal gives the food-sector investor a much bigger restaurant platform to attempt to grow, including franchise locations.

Qdoba operates 750 fast-casual outlets across the country, about 450 of which are franchised. Headquartered in Mission Valley, Qdoba was owned for 15 years by Jack in the Box, which is also based in San Diego. It was sold to Apollo in 2017 for $305 million amid pressure on Jack in the Box from an activist shareholder.

Modern Market has just 28 eateries in four states — Colorado, Arizona Texas and Indiana. The farm-to-table restaurant recently signed an agreement with an unnamed national franchisee that aims to bring 40 more Modern Markets to seven states.

Lemonade has 21 outlets in California, including a handful in San Diego.

“They are smaller,” said John Gordon, principal at restaurant advisory firm Pacific Management Consulting Group. “At least Apollo had an endless balance sheet. With the smaller group, who knows. But everybody wants to be bigger.”

As part of the deal, King Street Capital Management, a $22 billion private equity fund, is investing alongside Butterfly Equity. In a statement, the pair said they believe there is potential to grow to 3,000 outlets across their brands through franchises, licensed locations and company-owned stores.

That may take some time. Fast casual restaurant operators currently are being squeezed by high labor and food costs, as well as significant property lease expenses, said Gordon.

“You have problems with food and labor, and you have rents that are pretty high,” he said. “So, for the brand-new franchisee, they are going to be underwater for some considerable time after they open a store.”

Butterfly Equity’s acquisition is expected to close this fall. Qdoba Chief Executive Keith Guilbault will become co-CEO of Modern Restaurant Concepts — the entity that will run the combined brands. He will continue to lead the Qdoba arm, which claims to have a committed pipeline of roughly 300 franchise locations earmarked to open in the next five years.

“We’ve only scratched the surface of Qdoba’s potential to date, and Butterfly’s food focus will strengthen our ability to grow and deliver great food to our loyal customers,” Guilbault said in a statement.

Rob McColgan will serve as co-CEO and head the Modern Market and Lemonade operations.

“Qdoba is an iconic brand whose reach will help us bring Modern Market and Lemonade to new consumers and franchisees around the country, particularly as we begin our own franchising journey,” McColgan said in a statement.

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