By Abigail Summerville

NEW YORK, Feb 11 (Reuters) - Dave’s Hot Chicken, which counts rapper Drake among its investors, is exploring a potential sale that could value the popular restaurant chain at about $1 billion, including debt, people familiar with the matter said on Tuesday.

The Pasadena, California-based fried-chicken chain is working with investment bank North Point on a sale process, which is attracting interest from private equity firms, the sources said, requesting anonymity as the discussions are confidential.

The deliberations come at a time when restaurant operators like Dave's are facing increased labor costs and are attempting to pass on some of the recent bout of inflation to consumers by increasing menu prices.

Dave’s, which is known for its Nashville-style hot chicken, has capitalized on the growing consumer demand for chicken in recent years. It currently operates over 250 locations globally and generates roughly $1 billion in annual sales, the sources said.

Dave's and North Point did not respond to requests for comment.

Dave's, which is majority owned by its founders Dave Kopushyan, Arman Oganesyan, Tommy Rubenyan, and Gary Rubenyan, brought Drake on as an investor in 2021 and has received backing from other big names such as actor Samuel L. Jackson.

In 2017, Kopushyan and the other founders scraped together $900 and launched the company in an East Hollywood parking lot. In 2019, Dave's brought in Bill Phelps, who co-founded restaurant chain Wetzel’s Pretzels, as its chief executive officer.

Dave's has a franchised business model, having sold the rights to more than 1,000 franchise locations in the U.S., the Middle East and Canada, according to the company.

Restaurant franchise operators have traditionally been attractive targets for private equity firms, as they typically generate steady royalty fees and are less expensive to operate.

The U.S. restaurant business has been a bright spot for dealmaking recently. Blackstone acquired Tropical Smoothie Cafe last year, while restaurant chains Freddy's Frozen Custard & Steakburgers and Crumbl are currently in talks to sell themselves, Reuters has reported.

(Reporting by Abigail Summerville in New York; Editing by Anirban Sen and Lisa Shumaker)

((abigail.summerville@thomsonreuters.com;))