Family funds are more patient than private equity, which can make them an exceptional partner for any chain bent on stable growth.
— Jason Clampet
Leon Black, whose 60th birthday party featured seared foie gras and crab cakes for 200 guests, probably isn’t a frequent diner at Huddle House. But the private-equity titan now personally owns the growing chain of family restaurants.
Elysium, which invests part of the Apollo Global Management founder’s $5.6 billion fortune, bought the company this year from Sentinel Capital Partners for an undisclosed sum. The Atlanta-based chain — whose motto is “Any Meal. Any Time.” — has about 400 franchised outlets across the Southeast, offering kids-eat-free and Wednesday waffle specials.
Family offices like Black’s are taking notice of the potential returns from restaurant chains as sales at food-service and drinking establishments near their highest levels ever. Rather than just passively shielding wealthy families’ money, these managers are increasingly seeking to make direct investments in private companies, including those that cater to U.S. consumers’ insatiable demand for convenience and low-cost meals. In the past few years, family offices have invested in chains ranging from fast food in Arizona to health-conscious pizza delivery in California.
“The rise of fast casual has really opened a lot of peoples’ eyes to the growth opportunities,” said Greg Golkin, co-founder of Kitchen Fund, which invests in a portfolio of early-stage restaurants for family offices, high-net-worth individuals and others. “As you look at the success stories of Chipotle and Panera and Shake Shack in the public markets, I think those were really supported the awareness of the category as a way to preserve and grow capital.”
Unlike a traditional private equity fund, where investors may want to see significant revenue growth within five years, family offices offer businesses a longer time frame, said Jacob Roffman, managing partner of 39 North Capital.
“We take a more patient approach,” Roffman said. “You’re not required to jump into heavy growth situations on the restaurant side to justify an investment.”
New York-based 39 North directly invests capital on behalf of Eastbridge Group, a family office founded by the late European entrepreneur Yaron Bruckner that oversees about $1.5 billion in assets. In October, it acquired Eegee’s, a quick-service restaurant chain in Tucson, Arizona, known for its sandwiches and homemade ranch dressing, using the family’s money along with a few partners.
One of the main reasons restaurants are an appealing investment is that “it’s a business everyone understands,” according to Daniel Grossmann, co-founder of Kharis Capital, a private equity firm that works with family offices looking to directly invest in Europe.
“It’s a fairly well-established, resilient, liquid sector as well,” said Grossmann, whose firm has about 400 million euros ($453 million) invested in consumer businesses, including quick-service restaurants. That’s reassuring for families looking to directly invest for the first time, he said.
Convenience-obsessed Americans are increasingly visiting fast-casual restaurants when eating out. The top 500 fast-casual chains — which typically don’t offer full table service but strive for higher quality offerings than fast food — last year increased sales 8.8 percent, according to data from research firm Technomic Inc. That outpaced growth for fast food and sit-down restaurants, many of which are struggling to boost customer visits amid fierce competition and discounting.
Investments in recent years reflect these preferences. Nolan Capital, the family office of Leonard Green & Partners’ Peter Nolan, has a controlling interest in Fresh Brothers, a Los Angeles-based chain that offers gluten-free and vegan pizzas. Boston-based family office AVALT invested in fast-casual chains &pizza and Dig Inn.
Other families are choosing to spread risk by investing in an assortment of growing restaurant chains, Kitchen Fund’s Golkin said.
“Family offices can be much more nimble, and invest in the sectors they want at the appropriate times,” Golkin said. “They can play trends and cycles in a much more flexible way.”
–With assistance from Leslie Patton.
©2018 Bloomberg L.P.