A Murderer’s Row of industry dealmakers took the stage at the Restaurant Leadership Conference to air their widely different approaches to finding and profiting from restaurant acquisitions.
The four panelists walked the audience through every step of the process, from what makes a good acquisition to what changes they make after buying a concept and what potentially can go wrong.
They also spoke about their plans for specific recent acquisitions, including Arby’s, Corner Bakery and California Pizza Kitchen.
Here are some of the insights that were provided by the panel, which consisted of Rahul Aggarwal, managing director of Brentwood Associates; Josh Olshansky, managing director, Golden Gate Capital; Steve Romaniello, managing director, Roark Capital; and Andrew Taub, partner, Catterton Partners. The session was moderated by Bill Krausse, managing director of GE Capital, Franchise Finance.
What makes a good acquisition
“The two key components we look at are real estate and the brand. Because if they’re not right it’s going to be expensive to fix.” -Golden Gate’s Olshansky.
“The first thing we look at is unit economics. How fast can a new unit pay back?” -Catterton’s Taub
“It’s more personal to us. So we really have to be aligned to management.” -Roark’s Romaniello (who’s also chairman of the private-equity company’s restaurant-operating arm, Focus Brands)
What they value in a target’s management
“Passion for the business is really important. Seeing how they interact with their employees when they walk the floor can be very telling…It says a lot for a leader when they hire people who have skill sets they don’t have.” -Brentwood’s Aggarwal
“We want to find companies that we really like, led by people that we really like. And we buy them So we’ve never had to make a management change.” -Romaniello
Typical changes made post-acquisition
“A much more metric-driven approach to managing the business [is implemented.] You can measure guest satisfaction, labor productivity, you can manage food waste.” -Olshansky
“We get very involved in things like real estate investment, what markets you enter, purchasing…” -Taub
What can go wrong
“Putting too much debt on a company. [Also,] basing a price on an assumption that doesn’t work out.” -Romaniello
“One of the things we worry about is the balance against the guest experiences of the efficiency and the profitability of the business.” -Olshansky
What Obamacare will mean to private-equity owners
“You’re going to see a lot of people playing games with hours. You’re going to see a lot of people get a whole lot of less hours. I think it’s going to be very cumbersome from a compliance standpoint.” -Romaniello
“The conclusion I’ve come to is, very rare is the concept that can absorb that cost without passing it on to the consumer. What result that’s going to have on traffic and on other eating options remains to be seen.” -Taub