In 2014, newly formed investment firm Garnett Station Partners purchased a struggling 23-unit Burger King operation.
By 2019, Garnett had built its Cambridge Franchise Holdings portfolio to 166 Burger King locations and 55 Popeyes units, which it sold to Carrols Restaurant Group, then the largest Burger King franchisee. It’s one of several successful ventures for the firm, led by Matt Perelman and Alex Sloane.
“We’ve learned that restaurants are out of favor with the broader private equity world,” said Sloane during a presentation at the Restaurant Finance & Development Conference November 12. “You wouldn’t know it by how packed this room is. But that, we think, provides a lot of interesting opportunities. That’s one of the reasons we love restaurant investing, because we just don’t have the same competition for deals.”
Sloane and Perelman dug into the ins and outs of investing, including what they learned with successful sales, such as their work with the sports bar brand Twin Peaks.
“We really look for extremely high-quality businesses,” Sloane said. “Brands that have been around through multiple economic cycles and have the highest AUVs in their category when pursing investment. More importantly, when they have extraordinary management teams that we can really work with and provide the capital to turbocharge their growth.”
Sloane said it’s what led them to invest in Twin Peaks in 2019, citing the brand’s “extraordinary business with amazing metrics.” Initially investing $130 million at the time, Garnett Partners would later sell the concept to FAT Brands for $300 million.
“We’ve been able to meaningfully grow the metrics of each of the businesses we’ve invested in,” Sloane said. “Pollo Tropical is a great one, and we’re looking for more deals now, too. We try not to mess with what makes these special, but we also give them the sort of resources, as well as the access to technology, marketing, loyalty and capital to grow, not in new markets, but concentric circles.”
The purchase of Pollo Tropical, a chicken bowl concept with about 140 locations, took place in 2023. Through its subsidiary, Authentic Restaurant Brands, Garnett paid Fiesta Restaurant Group stockholders $8.50 per share, totaling $225 million.
As they work with acquired brands to build them up for a later sale, Perelman said broadening a concept’s technological capacity has become a major focus.
“God bless the last 20 years of Silicon Valley,” Perelman said. “There’s been so much capital invested in helping these businesses in a multi-unit way, from food cost software, to labor scheduling software… For us, the highest ROI projects we’ve invested in have been software around food costs and labor.”
Perelman did add that putting time and effort into the brick-and-mortar side of the business remains just as important.
“Early on, the remodels felt like an obligation,” Perelman said. “But at the end of the day, you have to reinvest in these boxes in order to maintain quality. If you allow them to get old and don’t reinvest in them, you can fall behind new competitors that pop up every single day.”
The subject of working with landlords was also brought up during the discussion, spurred by a question from moderator John Hamburger, president of Franchise Times Corp. and publisher of the Restaurant Finance Monitor, which produces RFDC.
Sloane said in his view, both investors and landlords are looking for the same thing.
“We go into each of these businesses with the plan of growing them and building value,” Sloane said. “Clearly, landlords feel the same way when they buy their real estate that we’re associated with. I know we have a great track record for building great value for all of our landlords. But there are times when there are challenges, and we need to work together on that.”
“Because of the cost of capital arbitrage, between where we trade and where restaurant operating companies trade, there are win-win things we can do,” added Perelman. “So, if we have four years left on a lease, perhaps that landlord is willing to give us capital in the form of remodel dollars or whatever, to extend that lease by another 16 years to 20.”
All of those efforts, from partnerships to strategic investments, Sloane said, go back to a lesson learned from their mentors.
“One of them said very early on that you want to build a reputation of being rally good sellers of businesses,” Sloane said. “Whether it’s a family office or a private equity firm, we want them to know they’re going to make money when they buy a business from us and generate attractive returns.”
The Restaurant Finance & Development Conference, presented by the Restaurant Finance Monitor, Franchise Times and Food On Demand, runs through November 13 at the Fontainebleau in Las Vegas.