5 Questions with Neal Aronson


Roark Capital Group of Atlanta recently acquired Schlotzsky’s Inc., an Austin, Texas-based sandwich shop chain with around $210 million in annual revenue. The deal was officially made by Roark-controlled Focus Brands, and is just the latest in a long line of restaurant industry deals this year.

So let’s play Five Questions with Neal Aronson, managing partner of Roark Capital and chairman of Focus Brands:

This has been a blockbuster year for restaurant industry buyouts. Any particular reason?
I think that all industries are seeing a lot of private equity activity, because you have a larger number of firms in play with a lot more capital to invest. But the private equity firms has really liked consumer businesses over the past two or three years; and really liked the leveragability of a multi-unit rollout growth model.
The caution I’d give is that the restaurant industry – like other industries – has some cyclicality, which we’re beginning to see with guest counts softening a bit. I think it’s because of high gas prices and higher interest rates on home mortgages… Private equity firms hated restaurants five years ago, so as interesting as it has been to watch their aggressiveness over the past few years, it will be just as interesting to see how aggressive they will be if current trends of consumers being more cautious continues.

Real estate plays a major role in restaurant buyouts. Are you worried that the real estate market seems to be softening?
I actually think that today’s real estate market is still very vibrant in the restaurant sector – and think it’s a supply and demand equation. There are a lot of chains looking for similar sites and locations… There could be some negative impact if the cost of construction continues to increase, but not from the softening residential real estate market.

Given what you said before about some worrisome consumer trends, are lenders getting any more selective or hard-nosed when it comes to restaurant buyouts?
It’s a great question, but the answer is no. In fact, the lending universe has gotten even more aggressive.
These softening trends have not had a major impact yet, so lenders haven’t yet reacted. If they do continue with the consumer getting more fickle and a flattening of profits – and I’m not predicting that one way or the other – you’ll probably see lenders react.

Roark bought Schlotzsky’s through Focus Brands, which is a sort of acquisition platform that also includes Carvel, Cinnabon and Seattle’s Best Coffee. Why merge your restaurant assets under the Focus umbrella, instead of as stand-alone companies?
We do both. We bought McAlister’s Deli on a stand-alone basis and it’s doing quite well because it had all the pieces in place to grow its business. Schlotzsky’s had a good stable base of franchisees and a solid operating team, but had not yet invested in the growth piece of its infrastructure. Focus Brands already has made those investments in technology, real estate assistance, site selection models, etc. So it’s a natural fit to have Focus acquire Schlotzsky’s, instead of having Schlotzsky’s have to create all of that on its own.

What’s your favorite Schlotzsky’s sandwich?
It’s got to be the original… with turkey.