A fast-growing Pasadena-based fried chicken chain that started out with three friends selling food in a parking lot has caught the eye of the owner of Subway.

Dave’s Hot Chicken, a series of fast-casual restaurants that specialize in Nashville-style hot chicken, is set to be acquired by private equity giant Roark Capital Management for approximately $1 billion, the Wall Street Journal reported late last month, citing unidentified sources. Dave’s and Roark did not respond to repeated requests for comment.

The expected acquisition would cap off a stunning ascent for Dave’s, which has exploded in popularity following a slew of restaurant openings across the United States, Canada, Europe and the Middle East, picking up celebrity investors including rapper Drake and R&B artist Usher along the way. The terms of their investments are undisclosed.

The chain is best known for its chicken tenders, bites and sliders, seasoned with a signature spice mix that ranges in heat, from levels dubbed “No Spice” to “The Reaper.”

The acquisition would allow Roark, an Atlanta-based firm with $38 billion in assets under management, to add another fast-casual offering to its portfolio, which already includes Arby’s, Buffalo Wild Wings, Dunkin’ and Carl’s Jr.

Getting its start as a restaurant

Dave’s was founded in 2017 by childhood friends Dave Kopushyan, Arman Oganesyan and Tommy Rubenyan, who say they initially scraped together $900 to set up a food stand in an East Hollywood car park.

The business later became a brick-and-mortar restaurant in the same neighborhood, before the enlistment of Bill Phelps, the co-founder and former chief executive of Pasadena-based Wetzel’s Pretzels and one of the first investors in Blaze Pizza — a ​​company that until last year was also headquartered in Pasadena — to start franchising. Phelps joined as CEO in 2019.

Since then, Dave’s has sold the rights to more than 1,000 franchise locations, and is slated to open more than 80 new outlets this year, according to a January company statement.

In 2022, the most recent year for which the private company disclosed data, Dave’s said sales had jumped 156% compared to the previous year, without specifying the value.

That puts it among the fastest-growing limited-service restaurant chains in the country, according to Ryan Tuttle, a senior consultant at market research provider Euromonitor International Ltd., referring to eateries that tend to specialize in one or two entrées.

Reuters reported in February that Dave’s had reached $1 billion in annual sales. The chain did not respond to a request for confirmation. 

Banking on the chicken craze

What’s behind the company’s blockbuster growth?

“Chicken right now is really in vogue,” Tuttle said.

Chicken was the best-performing category in U.S. limited-service restaurants in 2024, with sales increasing 10% to $57.8 billion compared to the previous year, according to Euromonitor.

Analysts say that’s in part due to the low cost of the poultry staple compared with other meats, though the recent spread of avian flu threatens to raise costs.

Dave’s has also benefited from its particular focus on Nashville-style hot chicken, which has enjoyed a surge in consumer interest, according to Billy Roberts, a senior analyst of food and beverage for CoBank, a cooperative bank that serves the U.S. rural economy.

Hot chicken has been “kind of wildly popular for going on at least half a decade, probably a little bit longer than that, depending on your location,” he said in an interview. “There’s still quite a bit of runway for it to grow in the U.S., get into certain markets.”

However, the chain may run the risk of being vetoed by consumers who can’t take spice, particularly if it’s not clear it’s offering mild options.

“Every commercial I see for them, every bit of marketing really highlights that spicier, hotter flavor. It’s in the name, right?” said Roberts.

Extending its offerings beyond just chicken

Dave’s has already taken steps to broaden its appeal. Last year, cauliflower bites and sliders were added to the menu for a limited time as new options for meatless diners.

The items appeared to be a hit: In January, Dave’s announced it was reviving them for another limited period, saying the team had “received hundreds of messages on social media begging us to bring [them] back.”

In its early days, Dave’s enjoyed momentum through word of mouth within the Los Angeles community, noted Tuttle. By gaining traction locally before expanding elsewhere, it was able to become a “beloved” chain, propelling it forward, he added, citing New York’s Shake Shack and Illinois’ Portillo’s as examples of other brands with similar journeys.

Dave’s has made clear this traction has played a role in its success, boasting of becoming “a social media sensation” following what it called “rave reviews by its fanatic Instagram followers.” The brand currently has 3.3 million TikTok followers and 1.6 million followers on Instagram.

Having celebrities on board hasn’t hurt, either. Prominent backers, which also include actor Samuel L. Jackson of “Snakes on a Plane” fame, have boosted the chain’s visibility, showing how food and beverage companies are increasingly tapping star entertainers to help them stand out.

To appeal to foodies, Dave’s has also played up its culinary background, touting the credentials of co-founder Kopushyan, a chef who says he previously trained at Thomas Keller’s world-famous French Laundry restaurant.

Keeping a strong emphasis on taste will be key to the company’s continued growth efforts, according to chief executive Phelps.

“As we continue to expand across the globe, we know that focusing on making the most craveable, hottest and juiciest hot chicken on the planet will ensure that expansion,” he said in a December statement announcing Dave’s first United Kingdom restaurant.

The company has also appeared to keep a high bar for franchisees, with those interested in signing up required to have a net worth of at least $5 million and to already own at least five quick-service or fast-casual restaurants, noted Tuttle.

“So you’re not looking at just Mom and Pop,” he said. “They’re really saying, ‘OK, we want to make sure we get franchisees that are going to (be) set up for success, both for them and for the brand as a whole.’”

A frontrunner in the sector

Dave’s has been actively exploring a sale, according to a February report from Reuters, which cited unidentified sources. Dave’s did not respond to a request for confirmation.

Analysts note the company has stood out for its operational strengths, particularly being led by industry veteran Phelps, who came from a successful run with Wetzel’s Pretzels and likely showed investors the firm was in good hands.

The company has also made headlines for introducing more automation to its business, which may have bolstered its attractiveness to buyers prizing cost efficiency.

Dave’s recently told the Wall Street Journal that it had responded to California’s minimum wage increase in April 2024 by bringing in automated dishwashers and a grease-filtering system, among other changes, that allowed it to save heavily on costs.

“There’s a lot of innovation in automation going on in this space that’s seeking to reduce the labor requirements in restaurants. I think we’re going to continue to see this,” said Roberts.

The expected sale would add to a pickup in deals in the U.S. food and beverage space.

In 2024, the industry saw about $69 billion worth of mergers and acquisitions, up from $36.2 billion the previous year, according to PitchBook data provided to the Business Journal. 

More activity is expected. So far in the first quarter of this year, the value of M&A deals has already surpassed that from the entire first three months of last year, with more than $4.5 billion compared to just under $4.4 billion, respectively, PitchBook statistics show. Expected interest rate cuts are said to be one factor behind the uptick.

Competition, however, is also expected to heat up.

“What Dave’s is really trying to do is establish itself as a go-to brand for hot chicken in the space,” said Roberts. “The bigger question is, will some competitors really come to the fore with some hotter options themselves?”

Industry rivalries reached bitter new heights in the so-called “chicken wars” that unfolded in 2019, which saw everyone from Popeyes Louisiana Kitchen Inc. to McDonald’s Corp. competing fiercely over their own iterations of a chicken sandwich.

Now, “we’ve opened the spicy front in the chicken wars,” said Roberts. “Dave’s is certainly leading that charge.”