Papa Murphy’s Auction Heating Up M&A Market

The M&A market is tepid at best, but the auction for Papa Murphy’s International Inc., a cold pizza chain owned by Charlesbank Capital Partners, is heating up.

The company hired North Point Advisors in November to shop the restaurant; first round bids are expected by month’s end. The M&A market is viewing Papa Murphy’s as a shining star amid a sea of mediocre acquisition targets, a buyside source familiar with the situation said. Likewise, that means the company may garner a boom-era Ebitda multiple for Charlesbank. “The only healthy companies out there are going for pretty high valuations,” the source said. “That doesn’t mean all valuations are high, it just means there are so few pristine companies, that when they do come to market, everyone wants a piece.” (Or don’t you mean slice? Hey-o…)

Papa Murphy’s, with its franchise model, is one such healthy company (despite its rather unhealthy offerings). The company sells uncooked pizzas, may be an offshoot of the “bake your own pie” concept devised by Kramer on Seinfeld.

The company has $18 million in Ebitda and is expected to go for an 8x to 10x multiple, or up to $180 million. Private equity firms have been salivating over the asset, the source familiar with the deal said.

It’s not the first fast food restaurant to garner private equity affection since the downturn. Last summer Friedman Fleischer & Lowe purchased Church’s Chicken from Arcapita for an Ebitda multiple of between 6x and 7.8x. More than 10 buyout firms looked at the company during its Bank of America-led auction. Thanks to a sale-leaseback transactions, Arcapita made 2x its money net of all carried interest and fees.

Charlesbank bought Papa Murphy’s in 2004, using capital from Charlesbank Equity Fund V LP, a $590 million pool. The deal value was not available but it involved $100 million in senior bank debt. The company had roughly $350 million in sales in 2004.

Charlesbank knows what it’s like to be a “have” in a world of “have-nots.” The firm completed one of 2009’s hottest fundraises, collecting $1.5 billion in commitments for its seventh fund. The firm beat its target of $1.25 billion in five months.