Growth through Private Equity Investment: Six Ideas to Become More Attractive to Investors

“Good restaurant companies will continue to attract investor attention in 2017, and more private equity firms seem willing to acquire a restaurant company as a new platform,” says Gary Levy, CohnReznick’s Hospitality Industry Practice Leader. He adds, “There are some broken brands out there that could certainly use the financial and intellectual resources of a good private equity partner. As we continue into 2017, we should see some recognizable brands try to reinvent themselves with the help of a private equity partner.”

PE Firms Put Opportunity Ahead of Uncertainty

Private equity interest in the restaurant industry was solid in 2016.  Pitchbook reports that 47 U.S. restaurant deals closed with corresponding capital invested of $1.8 billion—an 18% increase in the number of deals closed in 2015 and a 74% increase in capital invested year over year.  So, even as the restaurant industry faces numerous challenges related to  increasing labor and real estate costs, slowing same store sales, decreasing margins, and overcapacity, private equity investors appear relatively unscathed and continue to demonstrate their confidence in the future of the industry.

 

Broadly speaking, private equity investors are facing numerous challenges of their own. There is fierce competition for deals with corporate buyers and even venture capital investors. And while there is strong demand for quality assets, there is also a shrinking supply. The larger number of buyers, which include those corporate and venture capital investors, has contributed to more lofty valuations.  In 2016, corporate investors closed 18 U.S. restaurant deals with capital invested of $341 million and venture capital investors closed 55 U.S. restaurant deals with capital invested of $312 million.

Attracting PE Investment: Six Steps for Success

“The heightened level of interest by restaurant investors is good news for restaurant companies that need capital to either implement growth strategies, re-capitalize, or exit.” says Cindy McLoughlin, a partner in CohnReznick’s Hospitality Industry Practice. But restaurant companies still need to implement the growth-focused financial and business strategies to attract interest from an investment community replete with capital.  

 

Here are some recommendations. 

 

 

If a relationship with a private equity firm is part of your strategic growth or exit plan, strengthen those components of your business where private equity investors place the greatest value.  And remember, the best private equity partner is not always the one who is willing to cut you the biggest check. Instead, look for a private equity partner that can support their financial commitment with the deep restaurant industry experience that you can trust. You will find a partner you can depend on and work with to continue the growth of your business.