TSG to Sell Its Only Restaurant Holding with Yard House, but More Deals Likely on Tap

TSG Consumer Partners is exiting Yard House USA after five years.

Last week, Darden Restaurants announced it was buying Yard House. The deal, valued at $585 million, is expected to close in August, a source says. Darden, which owns the Olive Garden, Red Lobster and LongHorn, says the acquisition represents 12.5x Yard House’s fiscal 2013 projected EBITDA of $44 million.

Hadley Mullin, a TSG managing director, says the sale represents a “phenomenal return” for TSG and co-investors Steele Platt, who is Yard House’s chairman and founder; Harald Herrmann, president and CEO; and, Carlito Jocson, corporate executive chef. “We couldn’t be more thrilled with this outcome for Yard House,” Mullin says. “We feel incredibly fortunate to have been partnered with Platt, Herrmann, Jocson, and the rest of the Yard House team.”

Irvine, Calif.-based Yard House has 39 restaurants spread across 13 states. The restaurants serve contemporary American cuisine like chicken enchilada steak, roasted turkey pot pie and orange peel chicken. Each Yard House also provides 130 or more taps of imported, craft and specialty beers. Yard House generated $262 million in sales and $39 million EBITDA in calendar 2011, Fitch Ratings said. Yard House has no debt, a second person says.

TSG, which invests in consumer companies, acquired a majority stake in Yard House in 2007 in a deal valued at less than $200 million, according to press reports. The PE firm put in about 40% equity, a source says. The investment was also the first from TSG’s last buyout fund, TSG5 LP, which raised $900 million in 2007. TSG5 produced an IRR since inception of 10.21%, according to Dec. 31 data from Colorado PERA. TSG, in November, raised $1.3 billion for its sixth pool. 

Mullin declined to comment on how much TSG invested. The PE firm had spent 10 years looking at the restaurant sector, and evaluated 100 different concepts, before buying Yard House, she says. TSG liked Yard House’s unique guest experience, the high-quality dining offered and its wide drink selection, she says. “We could envision a family enjoying Yard House as well as a group of young professionals heading there after work,” she says. “It has wide demographic appeal.”

Also, TSG’s investment in Yard House represented the firm’s largest equity check at that time, she says. TSG received numerous inquiries from potential acquirers over the years, Mullin says.

Yard House is currently TSG’s sole restaurant holding. But the PE firm expects to do more deals in the sector, Mullen says. “We hope Yard House is the first of many more successful restaurant partnerships to come,” she says.

JP Morgan provided financial advice to TSG, while Mark Metts, Sam Gandhi, Laura Barzilai, Liz McCloy, Laura Leonard and Marc Raven of Sidley & Austin provided legal advice. Roger Matthews, of Goldman Sachs, advised Darden. Gary Thompson, Steve Haas Mike Goldman and Lawton Way of Hunton &  Williams were their attorneys.

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