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PE May Bite Into Morton’s But Any Sale Will Be Small

Morton’s Restaurant Group, which is backed by Castle Harlan and Lauren Crown Capital, may be going up for sale.

Chicago-based Morton’s, which is known for its expensive steaks, said yesterday it was considering strategic alternatives, including a sale. The company has hired Jefferies & Co. as its financial advisor. Castle Harlan and Lauren Crown, which own roughly 26% of shares, support Morton’s decision to look at options, a statement said.

Any sale will likely be small. Morton’s operates 77 steakhouses spread across the U.S. and six restaurants internationally. Morton’s currently has a market cap of $120 million and $24 million in adjusted EBITDA. In February, the company reported that first quarter adjusted net income from continuing operations increased 35% to $5.4 million for the time period ended Jan. 2. Revenue grew 6.2% to $84.1 million.

Strategics will likely look at Morton’s but the company will probably get the most interest from private equity, one banker says. Harold Rosser’s new firm, Rosser Capital Partners, is a possible buyer, a second banker says. Rosser earlier this year left his longtime firm Bruckmann Rosser Sherrill to form his own shop. A Rosser spokesman declined comment.

Oak Hill Capital Partners, which acquired Dave & Buster’s for $570 million last year, might also be interested, a PE exec says (I find it interesting that Jefferies, which is advising Morton’s, also served as the financial advisor to Wellspring Capital when it sold Dave & Buster’s to Oak Hill. Jefferies was also tapped last year to run the Benihana auction but I’m unclear what is happening there).

Sponsors are very lukewarm toward Morton’s but a deal may still come about, the first banking source says. “It is the most famous steak brand in the world, so someone may be willing to pay up for it,” the person said.

PE interest in restaurants has gained momentum. Kelso & Co. acquired Logan’s Roadhouse from Bruckmann Rosser Sherrill, Black Canyon Capital and Canyon Capital Advisors last year. Lee Equity Partners bought Papa Murphy’s, Mill Road Capital acquired Rubio’s Restaurants and Wellspring sold Dave & Buster’s to another PE firm. Apollo Management bought CKE Restaurants, which runs the Carl’s Jr. and Hardee’s chains, while Golden Gate Capital acquired On The Border.

Olympus Partners announced the sale today of K-Mac Holdings, the nation’s third largest taco bell franchisee. The buyer is another PE firm, Brentwood Associates. But this is a quick serve restaurant and not readily comparable to Morton’s, I’m told. Falfurrias Capital is also looking to sell its majority stake in Bojangles. Also, Wendy’s/Arby’s Group is trying to sell its Arby’s chain. I’m hearing there were three PE firms vying for Arby’s.

Still, some restaurant deals just don’t get off the ground. American Securities Capital was in talks to buy California Pizza Kitchen last summer before negotiations failed.

Oak Hill declined comment.