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Rhone Capital completes its purchase of Fogo de Chao

The Brazilian steakhouse chain was sold to the private-equity group over a proposed merger from another public company.

Rhone Capital on Thursday completed its purchase of Dallas-based Fogo de Chao, months after the Brazilian steakhouse chain opted for the safety of the private-equity group over a proposed merger from another public company.

The sale, at $15.75 a share, followed months of negotiations between Fogo and potential buyers, including one unnamed publicly traded restaurant company willing to pay $17 a share in cash and stock, according to SEC filings.

Fogo’s board, according to SEC filings, opted in favor of the Rhone deal because of concerns about debt and equity financing in the public company’s offer.

The sale to Rhone, announced in February, is valued at $560 million, a multiple of about 9 times estimated 2018 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

The sale to Rhone came less than three years after private-equity group Thomas H. Lee Partners took Fogo public.

Yet the chain failed to win over favor with public stock investors. Thomas H. Lee Partners still owned 60% of Fogo stock when the sale was announced.

The 51-unit chain is relatively unique, with unit volumes of about $8 million, high check averages and strong restaurant-level profit margins. The company generated $314.4 million in revenue in 2017 and net income of $28.4 million, according to SEC documents.

Fogo’s U.S. same-store sales increased 0.5% in 2017. But they fell 7.2% at the company’s Brazilian locations due to difficult comparisons from the 2016 Olympics.

Rhone acquired the chain believing that the firm’s “global experience, relationships and longstanding and expanding presence in Brazil is a natural complement to the company” and will help fuel its expansion, Eytan Tigay, Rhone’s managing director, said in February.

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