Brentwood Gets First Dividend from K-Mac as Fundraising Continues

Brentwood Associates, which is out fundraising for its next pool, has gotten its first dividend from K-Mac Holdings.

Los Angeles-based Brentwood acquired K-Mac, the largest Taco Bell franchisee in the U.S., in March 2011. The deal was valued at about $290 million, a person says. This week, Brentwood said it completed dividend recaps of K-Mac and Paper Source.

It’s unclear how much Brentwood put into K-Mac, but the buyout shop has gotten back half of its investment, a second source says. Brentwood says the distribution was financed through excess capacity under the company’s existing $252 million credit facility.

William Barnum, a Brentwood partner, wouldn’t comment on dividends or the firm’s fundraising plans.  K-Mac’s debt, after the dividend, is lower than when Brentwood acquired it, Barnum says. K-Mac has also added 46 Taco Bell franchises since it became a Brentwood portfolio company two years ago. Fort Smith, Ark.-based K-Mac currently operates 214 Taco Bell restaurants, as well as 18 KFC and 6 Golden Corral restaurants.

One of the reasons for Taco Bell’s success is its popular Doritos Locos Taco and the new Cantina Bell menu. “Doritos Tacos Locos has been fantastic,” Barnum says. “It will stay on the menu and it won’t be an item that comes and goes,” he says.

Paper Source, meanwhile, appears to be paying out a smaller dividend. Brentwood bought Paper Source, a Chicago-based stationary store, in 2007. It’s unclear how much the PE firm invested. Brentwood, in announcing the dividend, says the return exceeds its original investment. Paper Source took out a new $50 million loan to finance the dividend, Brentwood says.

News of the dividend recaps comes as Brentwood is officially out fundraising, several placement sources say. The consumer-focused PE firm targets middle market companies in sectors such as health and wellness, restaurants, specialty retail as well as consumer products/services. Brentwood typically invests from $20 million to $100 million equity per deal, the firm’s website says.

Brentwood officially launched fundraising in January, a placement source says. The PE firm has a $500 million target for Brentwood Associates Private Equity V LP, persons say. News of the $500 million goal was previously reported by peHUB last year.

The target is slightly higher than Brentwood’s prior fund, which raised $440 million in 2006.

“[Brentwood] has recast their track record to focus on consumer and retail. LPs are looking at that favorably,” a placement source says.

Photo courtesy of Taco Bell