Krystal sold to Atlanta-based investors

photo Krystal, the makers of the popular little burger, has been sold.

TIMELINE1932 - The first Krystal opens on the corner of Cherry and Seventh streets in Chattanooga1941 - The company has 33 restaurants in Tennessee, Georgia and Alabama1950s - Company adds drive-through window1965 - Krystal opens 100th restaurant1978 - Krystal reaches more than 5,700 employees1982 - Present logo is launched1992 - Krystal announces initial stock offering and the company becomes publicly traded on the Nasdaq Exchange.1997 - Company acquired by Port Royal Holdings in $145 million deal2003 - Fred Exum takes over as CEO2007 - Krystal aborts sale2011 - Company announces it is back on the auction block2012 - Argonne Capital Group buys Krystal in $175 million dealSource: The Krystal Co., news reportsFAST FACTSThe Krystal Co.• Headquarters: Chattanooga, home to 700 corporate employees• Founded: Oct. 24, 1932• CEO: Fred Exum• Former owners: Summerfield K. Johnston, Probasco and Patten family members in Chattanooga and the Ingram family in Nashville.• New owners: Argonne Capital Group• Number of restaurants: 360 in 11 states• Employees: More than 6,500Source: The Krystal Co.Argonne Capital Group• Headquarters: Atlanta, Ga.• Founded: 2003• Key people: Michael Klump, founder and president, and Karl Jaeger, managing director• Key investments: Excluding Krystal, the company owns more than 350 franchises and employs 10,000 workers at IHOP, Applebee's and Stevi B's Pizza locations nationwide.Source: Argonne Capital Group

Fred Exum feels like the weight has been lifted from his shoulders.

"I'm just glad the process is over," the CEO of The Krystal Co. said Thursday afternoon, following a meeting with his top managers to announce the sale of the Chattanooga-based restaurant chain.

The 55-year-old chief executive and Krystal investor said he got what he wanted out of the estimated $175 million deal with Atlanta-based Argonne Capital Group.

The headquarters of the nation's second-oldest hamburger company will remain in Chattanooga, and the company's mostly local investors - who have held out on selling since 1997 - made their money back. In fact, the former owners insisted on maintaining Krystal's Chattanooga base as a condition of any sale.

"The history of the company has always been here," Exum said. "Nobody wanted to consider moving it somewhere else."

Former owners also didn't want to sell to a so-called "strategic buyer," such as a competitor who might roll Krystal into its own operations, he said. They instead preferred to shop the company around to private groups that would add value to the burger chain.

New owner Michael Klump, founder and president of Argonne, said he saw "opportunity" in the acquisition and plans to continue opening new company-owned restaurants, according to a news release.

"We have watched with great interest as Krystal has continued to develop quality products, offer outstanding customer service and maintain brand dominance through the recession," Klump said in a statement.


Krystal's new board will include Klump and Karl Jaeger from Argonne, as well Stockton Croft, the firm's adviser. Harsha Agadi, former president and CEO of Church's Chicken, will also join the board.

With the addition of Krystal, Argonne's portfolio of restaurants includes more than 710 IHOP, Applebee's and Stevi B's Pizza restaurants, with more than 16,000 employees nationwide. The company also develops homes and invests in commercial real estate.

The last time Krystal changed owners, it was at the hands of Phillip Sanford, then senior vice president of finance and administration at Coca-Cola Enterprises. Sanford led a group that bought Krystal for about $108 million and also assumed about $37 million in debt, according to Nation's Restaurant News.

A 2003 Securities and Exchange Commission filing shows that the owners group then included Exum, Summerfield K. Johnston, the Probasco and Patten family members in Chattanooga and the Ingram family in Nashville. Though Sanford had resigned by that time, he still held the largest single chunk of shares - 26 percent.

After Sanford moved on, Exum took over in 2003 with the support of the then-owners, and began a journey to modernize one of the oldest fast-food brands in America.


Exum, who grew up in Krystal country, said he's been asked to stay on as CEO - at least during the transition.

"When I think of retirement, I think of being carried out feet first," he said.

Krystal was the first restaurant he remembers visiting as a young child, so it's not surprising that he characterizes his tenure as one spent "protecting the brand."

"I wanted to take what the Davenport family had started and do what I could to make it better," he said.

Krystal was founded by Rody Davenport on the corner of Seventh and Cherry streets in downtown Chattanooga. It's come a long way since then.

Exum updated the 80-year-old company and pushed it into the social media realm, leading to ever higher sales and per-transaction receipts at 360 locations in 11 states.

An aborted effort to sell the business in 2006 ended with the company withdrawing the sales offer and led to the buyback of high-performing franchises and rebranding efforts to boost Krystal's value.

photo Fred Exum of Krystal

Exum said an important part of the most-recent transaction was "finding the right owner, one that will continue to uphold the qualities of the Krystal brand that have made it a Southern icon."

He told employees that, the way he looked at it, "this is a very nice pat on the back."

"The reason we've been able to sell is that you've been doing a great job," he said. "We weathered the worst downturn in my business lifetime and came through well on the balance sheet."

Though the new owners now have the final say, not much is expected to change right away.

"They didn't just buy the company, they bought a business plan," Exum said. "There will undoubtedly be some changes, but they will do what's in their best interest."

Krystal's working plan includes aggressive expansion in the Southeast, which he calls the company's "heritage market," but almost no expansion outside of its traditional area of operations.

"It's not about kingdom building, it's about getting good return on capital for the owners," Exum said.

The company also plans to continue cost-cutting measures to cancel out the rising price of food, which has risen 8 percent year over year. To offset rising costs, the chain has moved to smaller restaurants that are less expensive to build.

Exum said he hopes the company will retain its distinctive, underdog personality - best represented by its current ad campaign that pokes fun at the mascots of other fast-food restaurants such as McDonald's, Burger King and Wendy's.

"I tell the staff all the time, we are kind of a niche brand, I think they ought to have fun," he said. "It's fun to see the little guy triumph."

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