Palladium in Market for Fourth Fund as It Tries to Sell Taco Bueno Again

Palladium Equity Partners, which is marketing for its fourth fund, may finally get to exit Taco Bueno after nearly seven years.

The New York-based PE firm, which targets the Hispanic market, has put the restaurant chain on the block, Reuters reports. Palladium has hired North Point Advisors to advise on the sale.

This is the third time Palladium has tried to sell the company since buying Taco Bueno in August 2005 for an undisclosed amount. The most recent attempt occurred in 2010, a banker says. “They were out trying to get the deal done but didn’t get the price they wanted,” the source says.

The economy has improved since 2010 while the debt markets have strengthened. Selling now makes sense for Palladium, the banker says. “This deal has been in their portfolio for a long time,” the source says.

Taco Bueno has about $23 million to $25 million EBITDA and might sell for 6-7x, Reuters says.

The auction of Taco Bueno is expected to be dominated by PE firms, sources say. A second banker estimates that there are roughly 15 PE firms that could be interested.

The list could include Golden Gate Capital, which bought California Pizza Kitchen for $470 million last year, and Roark Capital, which acquired Arby’s Restaurant Group for roughly $130 million. This year, Centerbridge Partners agreed to buy P.F. Chang’s in a deal valued at $1.1 billion. Also, Olympus Partners bought NPC International, the largest Pizza Hut franchisee in January.

But that’s not all. In 2010, Lee Equity Partners bought Papa Murphy’s for about 10x EBITDA, Mill Road Capital acquired Rubio’s Restaurants for roughly $91 million, and Oak Hill Capital Partners bought Dave & Buster’s from Wellspring Capital for $570 million. (Dave & Buster’s filed to go public again in July 2011.) Sun Capital also invests in restaurants including Captain D’s Seafood Kitchen and Boston Market.

The sale comes as Palladium is out fundraising for its fourth fund, which has an $800 million target, sources say. The PE firm typically invests from $15 million to $75 million equity per deal, according to the Palladium web site. The firm targets sectors including consumer/retail, food & beverage, as well as healthcare.

The firm’s last fund, Palladium Equity Partners III LP, collected $520 million in 2006. The pool has produced a net IRR since inception of 12.01%, according to March 31, 2011 data from CalSTRS.

“Their performance is quite respectable,” one LP said of Palladium.

Officials for Palladium declined comment.


Photo of tacos courtesy of Shutterstock