Sponsors Crowd Into Restaurants

Sponsor-backed restaurant deals proliferated in late May.

The most high-profile deal was Golden Gate Capital‘s agreement, announced May 25, to take California Pizza Kitchen Inc. private for $470 million, more than a year after the company began looking for a buyer.

Meanwhile, that same week, Buyouts reported that Bruckmann Rosser Sherrill & Co. agreed to sell Il Fornaio, an owner of Italian restaurants and bakeries, to Roark Capital Group, citing a source close to the deal. And finally, Goode Partners LLC, a small New York-based firm that buys consumer companies, recapitalized Chuy’s Holdings Inc., a chain of Mexican restaurants in Texas that the firm has owned since 2006.

Buyout shops appear to be betting that consumers will be more willing to dine out as the slow economic recovery continues. By buying now, these firms believe they can sell the company at a much higher multiple in a few years if the economy takes off.

“The long-term trends for eating away from home are very good but casual dining has been hurt due to the economy and high gas prices, creating a dip in the industry that will reverse,” the head of a buyout shop with experience in the sector told Buyouts.

Trying to time cycles is a tricky endeavor, of course, and some sponsors who bought restaurant businesses at the top of the market now have their hands full with struggling companies. Sbarro Inc., the struggling pizza chain that MidOcean Partners bought in January 2007, filed for bankruptcy protection in April but is reportedly now discussing a potentially transaction with a strategic buyer. And family restaurant chain Perkins & Marie Callender’s Inc., which Castle Harlan Inc. bought in 2005, in April hired an adviser to explore its financial alternatives, including Chapter 11 bankruptcy.

Sponsor-backed restaurant deals have rebounded considerably since the downturn. In 2010, buyout shops bought 24 restaurant companies with $5.66 billion in disclosed deal value, according to Thomson Reuters, publisher of Buyouts. In terms of disclosed deal value, that’s more than any other year in recent memory, including 2007, when sponsors backed 28 restaurant companies with a disclosed deal value of $4.86 billion. To read the rest of the story, go here.

Bernard Vaughan is a Senior Editor at Buyouts Magazine. Follow his tweets @BVaughanReuters.