What are the most active restaurant private equity firms? Don’t worry we have found them!
The restaurant industry in just the US is more than a $100 billion dollar industry. The driving forces behind this mammoth industry and its recent growth are uber-rich investors, restaurant private equity firms, several celebrities from all fields imaginable (for example Rick Ross owns multiple Wingstop Franchises).
In this read, we focus on some of the biggest private equity firms that are dedicated to the restaurant industry or have a high interest in allocating capital in the hospitality business. These firms are dealmakers for a major portion of the billion-dollar industry and are always seeking out the next big thing or the concept.
So, if you are a restaurant owner or an aspiring owner or simply want to be the “know-it-all” when it comes to the restaurant space, here are some names worth knowing.
Before we offer a list of relevant private equity firms and the best way to approach them, it is wise to have a fair idea about what they can do for you, the restaurant owner, and how both the parties benefit from such a deal.
We will start with some common questions you should consider when thinking about raising capital from restaurant private equity firms.
Then we will move on to the list of relevant names.
So, let’s ask some questions.
Table of Contents
Why Should You Partner With a Restaurant Private Equity Firm?
Apart from financial backing, private equity firms are capable of providing many added benefits, particularly when it comes to growing your restaurant empire. Of course, depending on the private equity firm, there are many more benefits that you can expect.
For instance, some firms will provide you operational help. Such as an experienced marketing manager for some of your projects, access to proprietary software, access to their real estate portfolio, and so on.
But here are the top 3 benefits that you can expect with any restaurant private equity firm:
Industry Specific Expertise
Private equity firms can provide a lot of industry and business-specific expertise. The restaurant’s business varies depending on format, cuisine, location, and so on.
Private equity firms usually own or invest in a specific restaurant type and their expertise should be able to give you guidance for your specific business.
Experienced investors like private equity firms have great connections.
They will be able to introduce you to industry experts, partners, highly qualified chefs, marketing geniuses, the COO of your dreams and so on, and this is a network that is usually not easy to access even if you are not new to the industry
The restaurant industry is notorious for its low margins. As a result, many restaurant businesses tend to operate with little or no excess capital.
During unforeseen or tough times, such as economic downturns, it’s in the best interest of these private equity funds to act as your safety cushion and help you manage the business back to profitability.
What Are Some Concerns When Considering Restaurant Private Equity Firms?
It is a golden rule that anything too good to be true comes usually is exactly that, too good. This section will cover the negatives of private equity that come with all the positives we just highlighted.
Restaurant private equity firms are backed by finances of multiple sources, known as limited partners, whom they entrust their vast fortunes to these private equity leaders, meaning that these firms have shareholders they have to report to, and show they are making money.
This means that the private equity return of investment capital (payback) and growth is their leading agendas over everything else. They usually have a specific pattern to obtain their return of investment capital, such as accelerated growth, exit opportunities (such as early exit), prioritizing cash flow over growth, and so on.
Below are the top three concerns you should be aware of when thinking about private equity:
Private equity investors are working towards an exit right from the start, they have little or no intention for a longer-term deal. Average asset ownership is about 3-5 years.
With this in mind, you should know your next steps in the event of an exit
Loss of Autonomy
Restaurant investing firms usually want to get included in the decision-making process, which means you lose autonomy, might experience slower decision-making and a more bureaucratic approach to leadership.
This is usually a caveat when going into business with them.
With low margins, having an investor means getting an even reduced share of the profits. Have a personal exit strategy when thinking about the private equity space when it comes to your restaurant empire.
Project what you will get out of the deal, and weigh the pros and cons from a future financial perspective.
What Makes Restaurants Attractive for Private Equity Firms?
Private equity firms are relentless in their search for the perfect match. You need to convince them with your compelling story, your dedication and passion, and of course your future financial viability. Knowing before-hand what is it that they look to find that match, helps you craft your pitch accordingly.
Here are the top three points you should understand and implement before pitching your business to restaurant private equity:
Restaurants are cash-based businesses. This is one of the unique businesses that receive payments when the sale occurs (normal businesses do not receive the monies from a sale for 30, 60, or 90 days).
This means that sales are strongly correlated with cash flow and this is alluring to the restaurant investing firms.
The restaurant business to a large extent is flexible and can pivot fairly easily. For instance, when the consumer tastes shifts towards a particular trend, it is easy for the restaurant business to adapt to the new trend with a relatively low upfront cost and minimal effort (think about Chipotles shift from dining in to carryout/delivery).
The investing firms are drawn towards the idea of pivoting and experimenting
Growth Opportunities in the industry are immense. For instance, licensing deals or franchising has a proven business model, launching store brands, and more.
Private equity firms largely focus on hyper-growth and the restaurant industry allows them to do this with confidence.
Restaurant Private Equity Groups You Should Definitely Consider
Moving on to the highly anticipated restaurant private equity groups list. The list is not in any particular order but highlights some of the major private equity players in the restaurant space. We walk you through their focus and some of their restaurant investments to give a brief overview of the firms. These details about each firm should help you understand if your restaurant business would be something they are possibly interested in.
Some example investments could also help you compare your business to those and get an understanding of if there is a natural fit.
Rosser Capital Partners
Connecticut based Rosser Capital Partners focus on emerging brands and concepts. They are interested in the restaurant, retail, and consumer industries.
They focus on restaurant groups with $2-$15 Million in EBITDA that have about 5-30 locations. They usually aim to expand nationally with their investments.
Some of their latest investments include bartaco, Barcelona (both Connecticut based), and Hickory Tavern (North Carolina based). You will notice the new trends introduced in these businesses. Some of their older successful investments include California Pizza Kitchen, Wendy’s, Au Bon Pain, and Bennigan’s.
Sun Capital Partners
A 25 years old investment company that tries to go for businesses with untapped potential and has a reputation for its excellent operational support. Owing to this specialty, naturally, their focus is on consumer services, healthcare, industrial and consumer sectors.
They look out for businesses in growing markets and which have around $50 Million to $1 Billion in annual revenue.
Carlyle Group is a global firm that invests across various industries including aerospace, defense & government services, consumer & retail, energy, financial services, healthcare, industrial, real estate, technology & business services, telecommunications & media and transportation.
Carlyle has extensive experience in the restaurant space, and this is reflected in their investments in many of the well-known chains including Dunkin’ Brands (franchisor of Dunkin’ Donuts and Baskin-Robbins), Chimney (pub-style restaurant chain in Japan), Alamar Foods (franchisee of Wendy’s and Domino’s Pizza restaurants in the Middle East), Gastronomía & Negocios S.A. (largest franchisor of quick-service restaurants in Chile), and Babela Group (Italian dining restaurant chain in China).
One of their latest investments is in Brazil in the Madero group that operates over 140 units in Brazil.
Sentinel Capital Partners
Sentinel Partners are focusing on the lower end of the middle market in the US and Canada. They invest in management buyouts, acquisitions of family businesses, corporate divestitures, industry consolidations, and going-private transactions. They also invest in special situations like balance sheet restructurings and operational turnarounds.
Potentially they could be a fit for your large restaurant group.
Based in New York, the Kitchen Fund exclusively invests in restaurants. This is a good name to research if you are a smaller or local business. While they provide capital support, they also help with operational expertise such as Environmental, Social, and Governance (ESG) initiatives, labor optimization, and so on.
They are aiming for unique concepts with strong projections, and also care a lot about the social impact of the business. They are particularly focused on new technologies in the industry.
Roark Capital Group
This Atlanta-based firm focuses on franchised and multi-unit business models in the restaurant industry.
They focus on multiple industries including food and restaurants, specialty retail, health, wellness and beauty, retail healthcare, business services, and education.
Some of the investments include Inspire Brands (the owner of Arby’s, Buffalo Wild Wings, Jimmy John’s, Rusty Taco, and Sonic), FOCUS Brands (the owner of Auntie Anne’s Pretzels, Carvel Ice Cream, Cinnabon, Jamba, McAlister’s Deli, Moe’s Southwest Grill, and Schlotzsky’s), CKE Restaurants (the owner of Carl’s Jr and Hardee’s), Miller’s Ale House, Culver’s, The Cheesecake Factory, Corner Bakery, Jim ‘N Nick’s BBQ, Naf Naf Middle Eastern Grill, and previously Il Fornaio and Wingstop.
A rather interesting one since they focus on firms that have unique technology solutions. Their portfolio reflects its focus.
Some major names include Impossible Foods (developing a new generation of meats and cheeses), Just, Inc. (trying to bring healthier and sustainable food to market), and Spyce, Inc. (a kitchen that is run by robotic chefs).
The firm looks for businesses with a significant technology or an innovative business model, short innovation cycles, and that have an existing large market or potential for a new one.
Fairmont Capital has been around for over 35 years and looks for companies positioned for growth. Their investment areas are diverse including biomedical, retail, software, distribution among others.
They prefer to invest in companies that can balance capital growth, management interface, strategic change, and innovation.
One of the leaders in the food & beverage private equity space, Arbor investments focus on middle-market companies.
They strive to bring executional expertise to your business and are three-time winners of the Buyouts Magazine Deal of the Year. Arbor is deep in the food space and pretty diverse in their focus and hence also includes packaging companies, protein processing companies, and more.
First Beverage Group
With a sole focus on the beverage space, this investment group provides support that goes far beyond just financial backing. They provide support with distribution, supply chain, strategic planning, marketing, and more.
They look for companies with revenues ranging between $1 Million to $15 Million and focus significantly on the management team and the product.
Final Thoughts on Restaurant Private Equity Firms
All in all, private equity deals remain a big part of the restaurant industry in both recessions and bull markets. When the industry struggles, many firms see it as a real opportunity to gather restaurant groups and chains at low valuations. When the industry soars, they want a share of the profit pie. Additionally, as you saw highlighted, these private equity deals are not biased to just big household names, but these groups also seek small and midsized restaurant concepts.
With their resources and expertise, this can be a great opportunity for the restaurateur with a smaller or mid-sized business that wants to take some money off the table.