Capitalizing on private equity: 6 things investors look for

A major educational component of the 2015 National Restaurant Association Show was a conference within a conference, a half-day session focused on the ways restaurant operators can raise growth capital. Much of the Restaurant Finance Summit was devoted to raising growth funds through private-equity investments. Speakers agreed that pools of private investors’ money are still deep and growing, and restaurants have emerged as a favorite target. But they cautioned that there is intense competition to find the right matchups.

Here’s what speakers depicted as a restaurant company that is likely to draw the attention of PE investors:

  1. “It probably has more than one or two locations. Ideally it has proven itself outside of its core location,” said Russ Bendel, CEO of The Habit and the former chief of Mimi’s, both of which sold significant stakes to Connecticut-based KarpReilly.
  2. A PE firm is drawn to concepts run by management that is “flexible and open-minded,” but still tough enough to provide the leadership needed through the transition and the acceleration of expansion, said Bendel.
  3. Investors want the founder and his or her top executives to keep a stake so they have skin in the game. “A reasonable number: They want the founder, the management, to sell 80 percent and keep 20 percent,” Bendel said.
  4. “The Number One thing is sales per store and sales per square foot,” said Josh Goldin, managing partner of the Alliance Consumer Growth fund. “For us it starts and ends with unit volume. If your concept is not so extraordinary that you’re not doing extraordinary unit volumes,” it won’t keep Alliance’s attention.
  5. “We spend a lot of time on geography,” said Geoff Hill of Roark Capital, a PE company with controlling stakes in concepts ranging from Carl’s Jr. to Carvel. A candidate for an investment has to be transportable to areas outside its base, and still has many areas into which to expand.
  6. “We also look at the region,” Hill said. “There’s a lot happening in California right now on regulation. There’s a lot of minimum wage legislation [across the country.] You certainly have to look at that.”

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