Orangewood announces exit and outlines growth of Taco Bell franchisee

'ABTB is a great case study for an Orangewood deal,' says firm founder Alan Goldfarb.

Orangewood Partners will announce later this morning that in December, it exited ABTB, a Louisville, Kentucky-based Taco Bell franchisee.

The New York private equity firm doubled EBITDA during ownership of ABTB, according to sources familiar with the matter.

Founded in 2018, ABTB was formed as a partnership between Orangewood and Southpaw, an owner of quick service restaurants. The company began by acquiring 24 Taco Bell stores, later added eight more and completed seven ground-up developments.

To learn more, PE Hub caught up with Alan Goldfarb, founder and managing partner of Orangewood Partners.

“ABTB is a great case study for an Orangewood deal,” explained Goldfarb. “We have a specific investment model, which starts with a theme. With regards to our Taco Bell franchise investment, we are investing behind food service, sophistication, and convenience – which we think are long-term tailwinds in the consumer and food sectors – not just restaurants or quick service restaurants more broadly.”

Orangewood has a specific process around investing. It starts with an underlying theme, which in this case was quick service restaurants and changes in consumer behavior.

“Once we’ve decide on the underlying theme, we focus on identifying strategic partners, how we can add value, not just as a financial investor, but operationally as well,” he said. “In the case of ABTB, we partnered with Yum! brands and Taco Bell corporate.”

There were multiple levers of growth that were pulled during the hold period.

Alan Goldfarb, Orangewood Partners

“We grew the store base, through both acquisition and new builds, and we helped increase customer scores through various operational improvements,” Goldfarb said. “These actions led not just to revenue growth, but also cashflow growth.”

This initial investment in ABTB led to the firm’s Pacific Bell’s transaction, one of the largest Taco Bell franchisees in the country.

“We stuck with the same theme, same partnership approach, and ways that we can continue to add value and grow,” he said.

From the time the investment was made through to the exit, the economy has been volatile.

“While many investments were able to work during the era of record low interest rates, at Orangewood, we’ve known that we can’t rely on that to last forever and have really focused on driving value through things we can control, like growing cashflow and enhancing operations,” he said. “This strategy has led to revenue and cashflow growth and operational efficiencies across the portfolio.”

Goldfarb said that he is proud of what the firm has been able to accomplish across the board by “focusing on growth.”

“For example, since inception, each of our portfolio companies have grown their employee base,” he explained. “And so we’re looking at growing companies and creating operational efficiencies through technologies or other value add approaches. Our operating partner group really helps drive a lot of this, both from a functional standpoint and industry expertise.”

Another thing that changed was the covid pandemic.

“Even before covid, we understood that the restaurant sector is all about sophistication and convenience and is driven by a lot of technological enhancements,” said Goldfarb. “In our view, covid accelerated this fundamental shift in how consumers were engaging with QSRs. Consumers are not sitting down and eating in restaurants as much. Today, it’s much different. We’re seeing more pre-ordering on apps, more emphasis on eating at home, or on the go, with the acceleration of mobile ordering.”

Technology is a key. Goldfarb said: “The companies and the brands that are making investments in technological enhancements and related growth areas, we think, are going to be the winners.”