published Sunday, January 1st, 2012

Chattanooga area businesses grow and change hands in past year

Krystal Co., which opened a new South Broad Street restaurant in October, is up for sale. Investors who bought the fast-food chain in 1997 want to cash in on their investment.
Krystal Co., which opened a new South Broad Street restaurant in October, is up for sale. Investors who bought the fast-food chain in 1997 want to cash in on their investment.
Photo by John Rawlston.

Three of Chattanooga’s best-known nameplates were on the sales block during 2011, but as the year ended Saturday only one has a new owner.

Olan Mills, once America’s largest portrait studio whose name was stamped on millions of its photographs, was acquired by rival Lifetouch in Chattanooga’s biggest business deal of the year.

But in a year that brought local hospital and grocery mergers, realignments of health insurers and the sale of many distressed properties, the Krystal Co. and the Chattanooga Lookouts are still up for sale.

The new year is expected to bring new owners for both the Krystal restaurant chain and Chattanooga’s minor league baseball team, according to people marketing the companies.

And as the economy improves, experts predict there should be more mergers, acquisitions and initial stock offerings.

Dealmaking in recent years has been slowed by lingering debt concerns and the sluggish pace of economic growth, according to Ernst & Young’s M&A Tracker, which counts business deals around the globe.

Despite blockbuster alliances involving Chattanooga’s biggest office building, largest supermarket and biggest nursing home companies during 2011, Ernst & Young estimates the value of mergers and acquisitions worldwide was off by 30 percent in the fourth quarter from the same period a year ago.

“The decrease in the volume and value of deals was primarily driven by continued uncertainty caused by the eurozone crisis and the knock-on effect to the global economy,” said Dave Murray, the leader of Ernst & Young’s transaction advisory services division.

In Chattanooga, the downturn in the real estate market spurred the sale of many distressed properties during 2011.

Lenders reclaimed such mortgaged properties as Rarity Club in Marion County, the Oak Park Town Center in Hixson and the Canyon Ridge development in Walker County.

In the Chattanooga area, nearly 30 percent of the house sales during 2011 were of foreclosed properties.

“There are always opportunities,” said Mark Hite, the new president of the Greater Chattanooga Association of Realtors, who says his business has grown by double-digit levels even during the recession.

Portrait of change

Olan Mills II, the 81-year-old namesake of the business his father started in 1932, saw such an opportunity last year. Mills said the time had come to sell the family-owned business and the employee-owned Lifetouch was the best suitor.

“It just looked like a better outcome for our employees really to go ahead and do this,” Mills said when the sale of his 4,000-employee company was completed in November.

Mills left the company, but his name remains on the business and most of the company’s staff remains in place under Lifetouch.

Another famous Chattanooga business that also began in 1932 is still waiting to be sold.

The Krystal Co., the Southern fast-food chain famous for its small, square burgers, announced in August it was seeking a buyer 14 years after the current owners acquired Krystal from its founders.

Krystal CEO Fred Exum said he wants “to deliver an attractive exit” for the investors who bought Krystal in 1997 after the company emerged from bankruptcy.

Frank Burke, the owner of the Chattanooga Lookouts for the past 16 seasons, also is looking for a buyer of the storied Class AA baseball team. Burke and his late father, Daniel Burke, who died at 82 in October, bought the Lookouts in 1995. They built AT&T Stadium downtown in 2000 to house the minor league team.

Burke has been trying to sell the team for the past couple of years as the health of his father deteriorated.

New Investments

The past year yielded major announcements of new investments. The Chattanooga Area Chamber of Commerce counted 19 business additions or expansions that collectively will pump more than $143 million of investment and 778 new jobs in the region.

Life Care Centers of America, the nation’s largest privately owned nursing home chain based in Cleveland, Tenn., is building new nursing homes and retirement centers in Dayton, Tenn., and Ooltewah that will add more than 250 jobs.

Mann+Hummel USA is leasing the shuttered Seymour Tubing Co. plant in Dunlap, Tenn., and investing $15 million to manufacture automotive parts. The new plant is scheduled to open next year and employ 150 workers.

ADM is building a $25 million flour processing mill at Enterprise South; Carmax will soon open a $20 million dealership near I-75 and Shallowford Road, and Roadtec is spending more than $9.2 million to expand its construction machinery manufacturing.

Merger Activity

The new year also will bring a new owner for Alexian Brothers, which employs about 750 people at its local retirement centers, nursing home and assisted living facilities.

Ascension Health, the nation’s largest Catholic-owned medical care provider, announced plans in April to enter into the “no-cash” deal with Alexian Brothers, another Catholic church-affiliated ministry. Illinois regulators who oversee the Chicago-based Alexian Brothers approved the deal in December and the merger is effective today.

Another one of Chattanooga’s biggest employers, Cigna Corp., sold its Nashville Medicare operations to the BlueCross and Blue-Shield plan in South Carolina and then bought the Nashville-based Healthspring Inc. for $3.8 billion.

Bi-Lo, Chattanooga’s biggest supermarket chain, ended 2011 by buying a bigger Southern rival, Winn-Dixie.

A North Carolina bank holding company, North American Financial Holdings Inc., also entered East Tennessee by buying controlling interest in the region’s biggest independent bank, Green Bancshares Inc., for $217 million.

Retail realignment

Last year also brought the sale of Chattanooga’s second-biggest shopping mall, Northgate, to a company whose founders help start the mall in 1972. In October, CBL & Associates Properties Inc., which owns the city’s biggest mall — Hamilton Place — paid $11.5 million to buy Northgate. CBL officials said they plan to upgrade the 823,000-square-foot mall and are looking for additional tenants.

Just to the north up Highway 153, developer Bucky Wolford was forced to give up ownership of his Oak Park Town Center. The Hixson shopping center was sold at a foreclosure sale back to a Rome, Ga., group for $9 million, well below the $16 million Wolford initially borrowed to build the complex.

The Tennessee Valley Authority landed an even bigger discount by buying back its Chattanooga office complex at the start of 2011. With few potential users for Chattanooga’s biggest office complex other than the federal utility, TVA was able to buy back the building for only one-eighth as much as it sold the same buildings for 25 years earlier.

TVA built and then sold its four-building complex downtown to a Chicago real estate partnership in 1986 for $158 million. Under the leaseback arrangement with the Chicago group, TVA didn’t pay any rent during the 1980s. But by the end of the lease, TVA was paying $52 million a year to the Chicago group.

The former owners wanted to renew the lease when it expired at the end of 2010. But instead, TVA negotiated to buy the 1.1 million-square-foot complex back from the Chicago group for $22 million — or only $20 per square foot — in what may be one of the best business deals of 2011.

about Dave Flessner...

Dave Flessner is the business editor for the Times Free Press. A journalist for 35 years, Dave has been business editor and projects editor for the Chattanooga Times Free Press, city editor for The Chattanooga Times, business and county reporter for the Chattanooga Times, correspondent for the Lansing State Journal and Ingham County News in Michigan, staff writer for the Hastings Daily Tribune in Nebraska, and news director for WCBN-FM in Michigan. Dave, a native ...

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