Tully Friedman Talks Chicken, Chinese, and the Future of PE

Tully Friedman. Photo by Marcus Kaiser for Buyouts Texas. Copyright: Thomson Reuters

Toward the end of the last decade, private equity firms were hungry for chicken. Really, really hungry for chicken. Falfurrias Capital Partners snapped up fried chicken & biscuits champ Bojangles. Sun Capital went out for Boston Market. And, Friedman, Fleischer & Lowe took home Church’s Chicken. At a time when the U.S. economy was pushing consumers downmarket – from Wal-Marts to the Dollar Store – PE firms wanted to be downstream.

Thing is, says Tully Friedman, co-founder of Friedman Fleischer & Lowe, the same consumer that was increasingly likely to bring home more biscuits and birds is now likely to be doing more cooking at home and going out less frequently for dinner.

“They were the last to get hit,” Friedman said of the downmarket, or quick service, restaurants. U.S. consumers are just not up to dining out as often as they did, he says. So how will his PE firm navigate the investment? It’ll go international, that’s how.

Already operating 1,700 stores globally, Church’s Chicken, which the PE firm bought from Bahraini Arcapita Bank in 2009, will tack on another 1,000 restaurants globally via franchising. Bird is the word, and Church’s is going to China and tapping into new markets.

(L-R) Tully Friedman and Luisa Beltran and Jon Marino of peHUB
(L-R) Tully Friedman and Luisa Beltran and Jon Marino of peHUB. Photo by Marcus Kaiser for Buyouts Texas. Copyright: Thomson Reuters

Friedman doesn’t worry too much about the financing scene. He told the Buyouts Texas audience during his panel appearance on Thursday that FFL uses less than 2.5x leverage per deal. Even if the economy and the markets tank (which Friedman seems to believe), the PE fund will be able to cut deals. (Most of the PE firm’s deals are of the non-control variety, he said.)

Friedman even spoke about succession at the second private equity firm that bears his name, saying it would be relatively easy to identify who would move forward in the organization. There are three founding partners, and three senior partners after them. And, while he predicts that FFL will move along without him, Friedman told Buyouts Texas attendees this won’t be the case with every private equity firm. He thinks up to 50% could vanish.

“There is too much money, too many firms,” he told the audience.

Speaking privately with peHUB, Friedman acknowledged that it will take years for some firms to exit their funds and shut down shop.

Also at to the event, I asked Friedman, who currently serves as vice chairman with the American Enterprise Institute, if he thought the U.S. Supreme Court case over President Obama’s Affordable Healthcare Act for America would encourage private equity firms to invest again in the space. No dice, he says. There is too much uncertainty in the healthcare industry currently, and until some is resolved, many PE shops will likely keep their distance, he said.

While bystanders might think Friedman’s success would embolden him and FFL, the PE veteran said that since mid August he has exercised prudence.

“We run scared all the time,” he said.