Speaker 1: Welcome to Chopping It Up. I'm your host, Mike Hallon,
Speaker 1: the senior restaurant and food Service analyst at Bloomberg Intelligence.
Speaker 1: Today we're joined by Ashish Sah, founder and Managing director
Speaker 1: of Harrington Park Advisors, a boutique investment bank focused on
Speaker 1: in restaurants and consumer services companies. Thanks for doing this, Ashish.
Speaker 2: Thanks for having me, Mike.
Speaker 1: Yeah, I've been looking forward to this.
Speaker 2: Man.
Speaker 1: You very opinionated. My favorite type of people.
Speaker 2: Just like I do have my opinion yees.
Speaker 1: Yeah, it's great. Can you talk about your previous career
Speaker 1: experience and what motivated you to start Harrington Park.
Speaker 2: Yeah. Sure. Look, I've been an investment banker now for
Speaker 2: twenty one years, and I've had the opportunity to work
Speaker 2: at some of the global investment banks. Started my career
Speaker 2: at Bank of America, went over to Marylynch when there
Speaker 2: was a separate Meryl Lynch at the time, and RBC
Speaker 2: and a few other banks you know. Spent thirteen years
Speaker 2: in my career at first in New York City, working
Speaker 2: at various banks. Eventually moved to Chicago and joined Bank
Speaker 2: of Montreal and had the opportunity to work with the
Speaker 2: restaurants when I was there and just absolutely fell in
Speaker 2: love with the space. You know, the you know what's
Speaker 2: not like your your meetings are at restaurants, you're trying
Speaker 2: new food. I love food, And it was the people
Speaker 2: around the restaurant space. They're they're hospitable, they're kind, they
Speaker 2: know the value of a team, and all that just
Speaker 2: made it made the work just so much enjoyable. Yeah.
Speaker 2: You know, during that time at BMO, I landed up
Speaker 2: working on some pretty landmark transactions in the space, including
Speaker 2: work we were including the lead left book runner on
Speaker 2: Kurasushi's IPO back in trade nineteen, which you might recall
Speaker 2: at that point no restaurants were going public and a difficult,
Speaker 2: difficult background young company. We successfully achieved a IPO for Kurasushi,
Speaker 2: and and you know, the rest is history. That stock
Speaker 2: has gone through the roof over the last several years now.
Speaker 2: And the other transaction that that I'm very proud of
Speaker 2: was Condato Taco is a private company out of Columbus,
Speaker 2: Ohio that we sold to the Beakman Group in twenty
Speaker 2: twenty March or twenty twenty in fact, and right before
Speaker 2: the pandemic, and that business has done an amazing job
Speaker 2: growing over the last several years. Since that time, my
Speaker 2: be more days. I've grown my practice into consumer services
Speaker 2: as well, some multi union consumer services companies, and I've
Speaker 2: had the privilege to advise on some of the leading
Speaker 2: brands such as Velvet, Taco, Imags Studios, Another Broken Egg, Fuzzies, Pinstripes,
Speaker 2: Houston Hot Chicken and been able to drive results that
Speaker 2: we believe are the best in class outcomes in the sector.
Speaker 2: I started Heddington Park in early twenty twenty three, so
Speaker 2: we're a little bit over a year over now, and
Speaker 2: the goal was to provide bulge bracket white gloves service
Speaker 2: to emerging growth to middle market companies in the restaurant
Speaker 2: and consumers services space. We felt that needed to support
Speaker 2: the most but were unable to be served by the
Speaker 2: larger investment banks, and that was the goal behind Harrington
Speaker 2: Park Advisors. So over the last what is it now,
Speaker 2: fourteen to fifteen months, we've completed four transactions including Pinstripes,
Speaker 2: Houston Hot Chicken in its studios, and then just this
Speaker 2: week Untamed Brands.
Speaker 1: Yeah, that's great, it seems like a great niche. You've
Speaker 1: worked with some great brands and I'll circle back to
Speaker 1: those as we get into this. You know, let's just start,
Speaker 1: you know, at the five thousand foot view, as the
Speaker 1: restaurant M and A market improved that all this year.
Speaker 2: Yes, and no, I think if you look at the
Speaker 2: transactions that are getting done. Obviously we just had the
Speaker 2: Tropical Smoothie deal get done at a very robust valuation.
Speaker 2: We also had Benny Hannah a sale get completed this year.
Speaker 2: And then you know, we sold on Tame brands, We
Speaker 2: did it in the consumer services, we did image studios
Speaker 2: this year. But if you think about kind of the
Speaker 2: volume and the velocity of deals, it is not what
Speaker 2: it was in twenty nineteen, or for that matter, in
Speaker 2: twenty or twenty twenty one when the entire M and
Speaker 2: A market was on fire. And but what's happening, I
Speaker 2: believe behind the scenes is there are assets that are
Speaker 2: and I'm talking purely about private markets at this point,
Speaker 2: there are assets that are coming out. I think it's
Speaker 2: probably driven by a whole host of factors, including you know,
Speaker 2: founders needing monetization, people realizing that the gap that invaluations
Speaker 2: isn't going to come down. But so activity is starting
Speaker 2: to pick up. More more companies are talking about capital
Speaker 2: raises or partial or complete sales of the businesses, but
Speaker 2: it is nowhere near the velocity that we had in
Speaker 2: prior years.
Speaker 1: Okay, is there a wide gap in interests between company
Speaker 1: and franchise models as well as full and quick service?
Speaker 2: Huge gap? I think, you know the what we've seen
Speaker 2: over the last several years. I mean, this probably goes
Speaker 2: back a decade and a half or two at this point.
Speaker 2: But you know, if you look at the public markets,
Speaker 2: the valuations for franchise ors went through the roof, and
Speaker 2: we saw companies like Jack in the Box, for example,
Speaker 2: go from I don't know, mid sixties, mid seventies franchise
Speaker 2: all the way to ninety plus franchise because they're recognized
Speaker 2: that that the public market investors were rewarding companies that
Speaker 2: were asset light prior to the pandemic. That interest was
Speaker 2: there in franchise ours from the private markets too, from
Speaker 2: institutional capital, private equity, family offices, but it took a
Speaker 2: whole new turn during a post pandemic. Currently, the interest
Speaker 2: in franchised models is at an all time high. If
Speaker 2: you look at the activity since twenty twenty with you know,
Speaker 2: whether it's Shipley's Donuts or Tropical Smoothie twice. Now the
Speaker 2: investors are all about franchise models. Given the asset light
Speaker 2: nature of the model, the more predictable nature of cash flows,
Speaker 2: the ability to get leverage on those cash flows. That
Speaker 2: that has created a huge gap between interesting franchise models
Speaker 2: versus company owned models. Uh. I think the other other
Speaker 2: part that the company or model is suffering from right
Speaker 2: now is if you again go back over the last
Speaker 2: decade or two, uh, there was once a belief that
Speaker 2: any innovative company owned model can become a national brand.
Speaker 2: And the post child for that obviously was Chipotle. You know,
Speaker 2: started from you know, one town into a national phenomena
Speaker 2: and continues to be a national phenomena today. And based
Speaker 2: on that success, a lot of institutional capital started chasing
Speaker 2: these innovative, younger, fast casual brands. And what has happened
Speaker 2: over the over the last decade is that a lot
Speaker 2: of those investments in those companies have not really been
Speaker 2: very successful. I think what is what maybe folks did
Speaker 2: not know but are now realizing, is that, you know,
Speaker 2: it obviously takes capital, right, unit economics don't typically match,
Speaker 2: you know, what the home marketing and economics are as
Speaker 2: you go into new markets, the marketing spend needed to
Speaker 2: expand into those markets is a significant amount and it
Speaker 2: just takes time. You know, when you have a five
Speaker 2: six seven year old as as private aquity typically does,
Speaker 2: it is very difficult to take an emerging brand and
Speaker 2: convert it into a even a regional brand for that matter.
Speaker 2: You know, we we we We've seen companies like you know,
Speaker 2: Cafe Rio for example, that you know was owned by
Speaker 2: a private acquity from Carpriley, but they owned it for
Speaker 2: almost twelve years and over that time they really grew
Speaker 2: that business into a super regional West Coast, Mountain West,
Speaker 2: you know, Midwest brand. But it took time and oftentimes
Speaker 2: those windows are not available for most private equity firms.
Speaker 2: So so those are the factors that are are are
Speaker 2: on people's minds as they think about franchise growth. Where
Speaker 2: you can if you have a really good franchise development platform,
Speaker 2: the right person in that seat, an amazing brand needing
Speaker 2: economics and cash and cash returns that work for franchisees,
Speaker 2: you can supercharge growth. Those franchisees are sitting in their
Speaker 2: local markets. They are the mom and pop that run
Speaker 2: that business, they know their community, they're invested in that business,
Speaker 2: and they're taking care of it day in and day out,
Speaker 2: as opposed to a regional manager who just runs you know, seven, eight,
Speaker 2: ten restaurants. And so today, in today's market, franchise concepts
Speaker 2: have been our hot property and company models have taken
Speaker 2: a little bit of a backseat compared to the franchise models.
Speaker 2: But these things come in waves, you know, and things change.
Speaker 2: You know, five six years ago, people were talking about
Speaker 2: why company models are more superior because you can actually
Speaker 2: maintain the culture of your organization when you own the stores.
Speaker 2: And in any company that is growing is and you
Speaker 2: hope to grow it into a super regional or even
Speaker 2: a national chain. Without culture, you will you cannot succeed
Speaker 2: having a single mission and and that can be hard
Speaker 2: in in enfranchised concepts. So look, we're currently in a
Speaker 2: wave of where franchise companies are attracting more attention. You know,
Speaker 2: my expectation is that the the quality of assets in
Speaker 2: any space or you know, there's a limited finite amount
Speaker 2: of high quality assets and some of those have already transacted,
Speaker 2: and then over time, those will those opportunities will diminish.
Speaker 2: And then you know, private equity firms, family offices will
Speaker 2: again start to consider companial models. Look, we're advising on
Speaker 2: businesses that are company or models right now that are
Speaker 2: absolutely fantastic, and have advised on companies that have company
Speaker 2: and models that are absolutely fantastic. And despite the changes
Speaker 2: in the current em and environment, those businesses in their
Speaker 2: own are outperforming uh and building into you know, juggernaut.
Speaker 2: So these things come in waves, they come and go,
Speaker 2: and right now we're in a place where franchise modelsm
Speaker 2: are more attractive, but I expect that to kind of
Speaker 2: change over time.
Speaker 1: That's really interesting because it feels like for over a decade,
Speaker 1: everybody's been chasing the next.
Speaker 2: Rapole that's right, and we haven't found one.
Speaker 1: And so you know, for some of these say fast
Speaker 1: casual brands that maybe have a few dozen stores, you know,
Speaker 1: should they be starting the franchise, says franchise or would
Speaker 1: be almost rather you know, get involved with a company
Speaker 1: owned fast casual and then they do the franchise.
Speaker 2: Yeah. Look, the franchise model is obviously very attractive from
Speaker 2: an acid light and growth perspective and the velosophy of
Speaker 2: that growth perspective, but it takes time to build up,
Speaker 2: and it takes investment to build up. You know, if
Speaker 2: you're just let's just say you've got a handful of stores,
Speaker 2: and you say, actually, I've got a pretty simple operation.
Speaker 2: My kitchen op offs are pretty simple. I think I
Speaker 2: can franchise this. First, you got to go set up
Speaker 2: that organization. You got to go follow FTDs, you got
Speaker 2: to get the right people in place to go find franchises. Eventually,
Speaker 2: when this franchisees sign up, provide them support on real
Speaker 2: estate marketing store opening, and then those franchises then have
Speaker 2: to go successfully open those stores right, and all that
Speaker 2: takes time. So if you're starting from scratch today, it
Speaker 2: can take you at least two to three years before
Speaker 2: you start seeing a a franchise store open. And then
Speaker 2: you having a franchise store does not make you a
Speaker 2: franchise or to really get the value as a franchise
Speaker 2: or you need to have I would say, you know,
Speaker 2: about one hundred hundred and twenty units franchise units open,
Speaker 2: because at that point you really start to leverage your infrastructure,
Speaker 2: and every new unit you open, the royalties from that
Speaker 2: start to trickle trickle down. Also, because you're only taking
Speaker 2: five six seven percent royalties and not getting the full
Speaker 2: EBIT of the store. As a company owned model, it
Speaker 2: just takes a longer time to scale your business into
Speaker 2: a larger scale EBITDA business, so to to for for
Speaker 2: for companies that are seeking the franchise route and to
Speaker 2: converting them into into franchise ors, it's going to take
Speaker 2: time to get those stores open, for those stores to
Speaker 2: show performance, to get scale, to get to one hundred
Speaker 2: plus units, to really fully achieve that valuation that you're
Speaker 2: seeking as a franchise or so oftentimes we're speaking to
Speaker 2: you know, private equity firms that are that have invested
Speaker 2: in a brand and are as asking hey, should I
Speaker 2: go down the franchise route? This seems French franchise Well,
Speaker 2: and for all the reasons I just stated, Uh, my
Speaker 2: advice is that unless you plan to hold for the
Speaker 2: next five to seven to nine years, a franchise route
Speaker 2: is not really going to drive the valuation that you're seeking.
Speaker 1: Yeah, yeah, that's great. It's a completely different muscle.
Speaker 2: Right, It completely is. It completely is. And and look,
Speaker 2: even companies that have company owned units and franchise units,
Speaker 2: there are plenty of brands out there that do both.
Speaker 2: It's almost like having two different organizations supporting those.
Speaker 1: Very cool valuation You mentioned any rebounding valuations at all
Speaker 1: this year.
Speaker 2: I think valuations continue to be not where they used
Speaker 2: to be prior to the pandemic. But you know, maybe
Speaker 2: if you look at it a different way, maybe valuations
Speaker 2: prior to the pandemic were highly elevated or all time highs. Right,
Speaker 2: so we're just coming back to where businesses like restaurants
Speaker 2: and services should be trading. Consumer services continues to be
Speaker 2: on a tear and those valuations are at an all
Speaker 2: time high as we speak, but restaurant valuations have come
Speaker 2: down from prior to the pandemic. I'm starting starting to
Speaker 2: see some hope that valuations will get a little bit
Speaker 2: of a pickup here, and I think that's going to
Speaker 2: be driven by the fact that there has been a
Speaker 2: little bit of easying on the credit side, whether it's
Speaker 2: banks but most likely private lenders are starting to reconsider
Speaker 2: investing into the restaurant space. Interest rates are starting to,
Speaker 2: you know, have have come down a little bit. No,
Speaker 2: not maybe compared to trade nineteen, but but where we
Speaker 2: were just about a year and a half ago. And
Speaker 2: I think that is driving some of the interesting restaurants
Speaker 2: because I think we're also working against a backdrop where
Speaker 2: the there has been if if you think about the
Speaker 2: restaurant space has absorbed over the last four years, it
Speaker 2: is incredible the fact that we are here still and
Speaker 2: have and have a restaurant industry. We had a pandemic
Speaker 2: where nobody knew what was going on. And I remind
Speaker 2: people who have who are forgotten, these are the days
Speaker 2: when we were spraying down Amazon packages before we brought
Speaker 2: them into our houses. Okay, those are the days. And
Speaker 2: they figured out how to adjust the models. Not everybody survived,
Speaker 2: but a lot did. But there to readjust their models
Speaker 2: there there how they communicate with their consumer and and
Speaker 2: and and so that was one. Then uh, you know,
Speaker 2: they got a lot of support from the government uh
Speaker 2: in PvP loans and they were you know, that helped
Speaker 2: a lot a lot of companies stay afloat. And then
Speaker 2: coming out of it, we had a consumer that had
Speaker 2: been saving for for during the pandemic. The government was
Speaker 2: you know, uh providing them uh support during that time
Speaker 2: as well. Student debt was taken off the table for
Speaker 2: a while there, right, and you had a consumer that
Speaker 2: was flushed with cash, had not been out of their
Speaker 2: homes in two years, and they were on a vendor.
Speaker 1: They were ready to rock.
Speaker 2: They were ready to rock, right, And so we saw
Speaker 2: in twenty twenty one, in twenty and twenty two, as
Speaker 2: a part of twenty twenty two, just in huge amount
Speaker 2: of traffic rolled through the doors of restaurant companies. But
Speaker 2: then what happened next is kind of what we're going
Speaker 2: through right now. The government incentives were taken away from
Speaker 2: both of them, or went away, i should say, from
Speaker 2: companies and from consumers. Student debt was back on the table.
Speaker 2: Interest rates went through the roof, and the consumer eventually
Speaker 2: exhausted a lot of their savings and had to come
Speaker 2: back to real life. But you know, living and living
Speaker 2: and saving for their personal expenses. And what we saw
Speaker 2: in twenty and by the way, this is all the
Speaker 2: background of huge inflation in twenty twenty two. But chicken prices,
Speaker 2: poork prices, beef prices were had had gone through the roof,
Speaker 2: and restaurants were taking five price increases. All these things
Speaker 2: happened all at the same and kind of narrowed in
Speaker 2: all at the same time into twenty twenty three and
Speaker 2: we saw a traffic decline in across the board for restaurants.
Speaker 2: That are only a few restaurants that I can think
Speaker 2: of at least that we speak to that have had
Speaker 2: positive traffic in twenty twenty three and now coming into
Speaker 2: twenty twenty four. And so that's the backdrop too that
Speaker 2: this m and a ENVI you know, private equity, which
Speaker 2: is a big investor in the restaurants space. This is
Speaker 2: a backdrop that they're trying to understand and invest against.
Speaker 2: So this impacts you know, obviously this impacts corporate owned
Speaker 2: models more than franchise models.
Speaker 1: Got it. How's the lending market right now?
Speaker 2: Yeah, the lending market is better still not where we
Speaker 2: were a couple of couple of years ago, But it
Speaker 2: also depends on what sort of business and model that
Speaker 2: you have. The lending market for franchise brands never never
Speaker 2: kind of really went away. Yeah, maybe the depth was
Speaker 2: a little bit more expensive, but the interest from especially
Speaker 2: the private lending community remained strong through the pandemic for
Speaker 2: franchise brands franchise ours, and then continues to be very
Speaker 2: strong today. If you're a corporate own business, the lending
Speaker 2: environment has gotten got really weak during the pandemic and
Speaker 2: kind of post pandemic, it's starting to get a little
Speaker 2: bit better. Today. Interest rates are still higher, not maybe
Speaker 2: at the highest that at the peaks that there were
Speaker 2: maybe a year and a half ago, but so the
Speaker 2: interest rate environment is getting better for corporatedome models too.
Speaker 2: And then look frinanally, there's the franchise ze models themselve els.
Speaker 2: Like I'm talking about larger uh blocks of Taco Bell
Speaker 2: franchisees or dunkin Donuts franchises, and the lending environment for
Speaker 2: those companies is is really strong. We're talking about leading
Speaker 2: brands that have been around for a long time. They've
Speaker 2: got thousands of thousands stores in the US, and there's
Speaker 2: a real history of success behind these brands, and these
Speaker 2: franchisees can get access to capital uh pretty pretty easily. Uh,
Speaker 2: And that's what's actually driving a lot of the interest
Speaker 2: from private equity in that franchisee space. You've got you've
Speaker 2: got you know, from a private private equities perspective, you're
Speaker 2: buying you know, a block of Taco bells wing stops
Speaker 2: or dunkin Donuts stores. Right there are one hundred plus
Speaker 2: stores in this in this one block that you're going
Speaker 2: to buy and uh, it is stable cash flow, right,
Speaker 2: and you can you can you can see it. You
Speaker 2: can look at look at the business over the last
Speaker 2: several years and see what the business does, so you
Speaker 2: know what the cash flows are going to be. Typically, Uh,
Speaker 2: you've got lending that is available to you. You still
Speaker 2: have some room for growth by opening new units, and
Speaker 2: you have the support of you know, multi billion dollar
Speaker 2: enterprises backing it. Like whether it's you know, whether it's
Speaker 2: again a dunkin Taco or a Wing Stock marketing dollars
Speaker 2: go a lot further, they really do. And these are
Speaker 2: national brands, but with national marketing campaigns and and and
Speaker 2: a national impression right on on consumers and you know,
Speaker 2: and and their value products. And in today's environment where
Speaker 2: people are worried about uh, the future, where they're worried
Speaker 2: about their their their wallets, the value plays really help.
Speaker 2: So that space, the franchise e space has seen a
Speaker 2: lot of interest from private equity and from recory investors
Speaker 2: that were previously buying company on models, branded company own
Speaker 2: models or franchise ors are now also dipping their toe
Speaker 2: into the franchise e space.
Speaker 1: Yeah, it's interesting, you know that they're willing to play
Speaker 1: the royalties and they add fund expense for these brands
Speaker 1: that they have faith in, like you know, Brentwood and
Speaker 1: wing stuff. Yeah, it's an interesting turn.
Speaker 2: Yeah. And look, you know, just in general, what they're
Speaker 2: giving away, especially in this environment, they may be giving
Speaker 2: away supercharged growth, but they're exchanging it for stability. They
Speaker 2: have to put dollars to work. They've got funds that
Speaker 2: need to be invested, so they're choosing. It's a risk
Speaker 2: reward analysis that they're doing, and they're saying, look, yeah,
Speaker 2: maybe my reward is going to be lower with matter
Speaker 2: risk is even lower. Let's put our dollars to work
Speaker 2: over here.
Speaker 1: Cool. Yeah, that's good insight into the companies I cover.
Speaker 1: Very cool. All Right, So you've worked with some great brands.
Speaker 1: You mentioned a lot of them at the top of
Speaker 1: the pod. What makes an emerging chain attractive?
Speaker 2: Yeah, it's uh, it's it's it's. It's one of those questions,
Speaker 2: which is, you know, what is beauty and it's it's it's. Uh.
Speaker 2: Some parts of it are hard to define, but other
Speaker 2: other parts are very easy definable of what makes a
Speaker 2: brand super attractive. So just kind of starting off with
Speaker 2: the concept itself. What is your concept is? Is is
Speaker 2: it a super niche concept that maybe works in say La,
Speaker 2: or works in New York City, or works in San Francisco,
Speaker 2: But does it work in the rest of the country? Right?
Speaker 2: And I think that is one of the key things.
Speaker 2: You know, all of all of us and maybe a
Speaker 2: lot of your listeners are sitting in you know, in
Speaker 2: in one of those cities today and they go to
Speaker 2: their local you know, solid chain, and they go to
Speaker 2: their local you know, eighteen dollar taco chain or eighteen
Speaker 2: dollars sandwich chain, right, and it's it's fine, that's it's
Speaker 2: within their price points. It's in the community. The taste
Speaker 2: profiles work, But does it work in Kansas City, doesn't
Speaker 2: work in Oklahoma, doesn't work in Texas? You know? And
Speaker 2: that's the question can you take to be successful as
Speaker 2: a brand in New York City or La or San Francisco?
Speaker 2: You know, in my view, you can probably put up
Speaker 2: one hundred and fifty two hundred, two hundred fifty units
Speaker 2: doing that. But to be a several hundred thousand plus,
Speaker 2: two thousand plus chain, you have to cater to the
Speaker 2: masses of this country and the masses of the country
Speaker 2: do not buy twenty dollars sandwiches twenty dollars salads, right,
Speaker 2: And so as we think about concepts, it has to
Speaker 2: be something and if you are if that is what
Speaker 2: you are selling, that is what you're marketing as a
Speaker 2: banker that this is a super regional potential for national chain.
Speaker 2: You have to demonstrate that the food will actually work
Speaker 2: and it is a kind of food that folks in
Speaker 2: all these the middle of the countries we'll want to eat.
Speaker 2: So you don't want to be too niche. You want
Speaker 2: to have a generalist kind of food. The food has
Speaker 2: to be good, the service has to be good. At
Speaker 2: the end of the day, If your food and your
Speaker 2: hospitality are not up to mark, you cannot succeed as
Speaker 2: a restaurant company because if you don't, the other restaurant
Speaker 2: chain down the street will beat you every time. So
Speaker 2: there's a concept portion of it. But then after that,
Speaker 2: you know, what makes an emerging brand a highly attractive
Speaker 2: and a highly attractive to institutional capital, I should say,
Speaker 2: is a couple of things. One concept we talked just
Speaker 2: talked about. Second, you know, you have to have at
Speaker 2: least several units in place. You know, it could be five, seven, ten, fifteen,
Speaker 2: where you can demonstrate that the unit economics are you
Speaker 2: can duplicate those unit economics again and again and again. Right,
Speaker 2: if you have huge variances, you got one unit doing
Speaker 2: three and a half million or the other ones doing
Speaker 2: a million a quarter, you don't have a proof of
Speaker 2: concept yet or nobody knows that what am I underwriting
Speaker 2: this in these unit economics. So having that is a
Speaker 2: number of stores that are around the same unit economic
Speaker 2: model is important. I think in today's market, just having
Speaker 2: top line sales is not enough. You have to demonstrate
Speaker 2: through the P and L that you can drive profitability
Speaker 2: at each store level, right, and that number is typically
Speaker 2: at twenty percent eighteen called sometimes can be eighteen percent,
Speaker 2: but twenty percent is the store level margins that we're
Speaker 2: looking for. So now you've got the union economic model
Speaker 2: that works. Then now can you replicate that model not
Speaker 2: just in your hometown but across other cities and other states.
Speaker 2: And now you've shown you've got a unique model that
Speaker 2: works and it works across multiple states, and now you
Speaker 2: have portability. Next, I would say, is going to be
Speaker 2: a management team. It is, and this is this is
Speaker 2: the tough part when you're a young company and you
Speaker 2: got five or seven stores, You're not you know, you're
Speaker 2: You're not going to get Brand Nichols to come run
Speaker 2: your company, right, You're you're you You only have that
Speaker 2: much capital. And the capital that you have that is
Speaker 2: coming down from your stores into your organization needs to
Speaker 2: be used for growth as well. So this is where
Speaker 2: the challenge comes up. How do you get the best
Speaker 2: people to run this business grow it? And I think
Speaker 2: you do it through culture. You do you do it
Speaker 2: through a mission. If you can get like minded people
Speaker 2: in the room who believe in the brand, in the
Speaker 2: mission that and you, they believe that they are providing
Speaker 2: a service and a product that is needed, uh, and
Speaker 2: they're in love with that brand, you can get more
Speaker 2: out of people. And so that's the tricky part, getting
Speaker 2: the management right to then take that business, you know,
Speaker 2: from five units to ten to fifteen units, but set
Speaker 2: up an organization systems and processes that can manage those
Speaker 2: company owned stores, that can manage the organization, drive for growth,
Speaker 2: drive for the best quality hospitality can provide. Together, then
Speaker 2: that's what makes a restaurant brand highly attractive, emerging restaurant
Speaker 2: brand highly attractive.
Speaker 1: That's really insightful. Yeah, hear that, listeners that phrase about
Speaker 1: in New York. If you can make it there, you
Speaker 1: can make it anywhere. Might not work for the restaurant business.
Speaker 2: Oh I'm I'm gonna get some hate mail.
Speaker 1: No, man, that was great, especially about around management, you know,
Speaker 1: very cool stuff. How does the matchmaking process typically work?
Speaker 1: How do you find the right partner for the business?
Speaker 2: Your were? Bestment bankers are Our job is to obviously
Speaker 2: get to know our clients and the companies that we
Speaker 2: want to work with, and but the other side of
Speaker 2: the coin is we need to know who the buyers
Speaker 2: and investors are into the space and in the in
Speaker 2: the private markets. This is all a paid right. This
Speaker 2: is not transparent. So the part one of the match
Speaker 2: making process is for me to understand my client their needs,
Speaker 2: what are they're looking to achieve both short term and
Speaker 2: long term, and then making sure making and then having
Speaker 2: the other started side of the coin, a broad network
Speaker 2: of people who from who I can understand who will
Speaker 2: be interested in a company like this that we are advising.
Speaker 2: But the match making process is, you know, for us,
Speaker 2: is it's a it's a it's bespoke, h it depends.
Speaker 2: We've run processes that are your typical investment banking processes.
Speaker 2: You know, we'd like to think to each everything we
Speaker 2: do is custom and bespoke and tailored to the situation
Speaker 2: that the client that we're working with. But the most
Speaker 2: general view of that is we we work with a client.
Speaker 2: We pulled together a confidation confidential information presentation. Use the
Speaker 2: eighty page document. We launched the process. We have two
Speaker 2: rounds of bidding. The first round is people putting in
Speaker 2: broad valuation ranges of where they would transact if you
Speaker 2: make it through. If if your bid is good enough,
Speaker 2: then you make it to round two. You co meet
Speaker 2: with management, get all the diligence, and then finally go
Speaker 2: to your l o I. We present a single point
Speaker 2: valuation and from there we pick the winner and you're
Speaker 2: after the you know, we're off to closing the deal
Speaker 2: in the next thirty to forty five days. In other situations,
Speaker 2: it's it's it's it's very different. We we recently sold
Speaker 2: a business where the we're working with the founder and
Speaker 2: the founder said, look, I've got a lot of growth
Speaker 2: that is coming up in the next year in twenty
Speaker 2: twenty four, and I'm afraid if I transact today, I'm
Speaker 2: going to give up a lot of value that I'm
Speaker 2: going to be building in twenty twenty four. And this
Speaker 2: was just these conversations were happening at the end of
Speaker 2: kind of third fourth quarter or twenty twenty three. But
Speaker 2: he also understood that with all the growth that is
Speaker 2: about to come, having the support of a private equity
Speaker 2: firm that has done it before, has Kale Companies, is
Speaker 2: going to be instrumental in avoiding pitfalls, right, And so
Speaker 2: that acquired a different, unique approach. So for that transaction,
Speaker 2: we said, hey, look, let's go talk to some of
Speaker 2: the best in class investors out there, people who have
Speaker 2: invested in this space, people who know the space, people
Speaker 2: who know you, and let's see if we can somehow
Speaker 2: get somebody to give you a valuation for twenty twenty
Speaker 2: four results today. And in that situation, we don't run
Speaker 2: a process. We go have a couple of conversations, see
Speaker 2: what the interest levels are, and through those conversations telling
Speaker 2: the story the right way, giving the investors the confidence
Speaker 2: that trying twenty four results are achievable. They are the
Speaker 2: companies unique and special and is run by an amazing
Speaker 2: management team if you can, we provided all their confidence
Speaker 2: and we're able to achieve at the end of twenty
Speaker 2: twenty three a result that value the company based on
Speaker 2: twenty twenty four numbers. Right, So that's a very different
Speaker 2: situation than I want to sell my company. But the
Speaker 2: key to the matchmaking, as you're asking, is it has
Speaker 2: to be unique to each each client, to each situation.
Speaker 2: A restaurant company in casual dining versus fast casual versus QSR,
Speaker 2: franchise over versus franchise versus company owned, all these have
Speaker 2: to be marketed and different ways. Investor base for those
Speaker 2: companies are completely different. And then of course we're talking
Speaker 2: about different sizes of companies too. The investor base that
Speaker 2: when we sold Velvet Taco is completely different than the
Speaker 2: investor base that for a company like Image Studios or
Speaker 2: Houston Hart Chicken. So it is understanding your client, understanding
Speaker 2: the investor community, and finding and bringing those people together.
Speaker 2: And then look, it's at the end of the day,
Speaker 2: you're going to get hopefully multiple bids, and then it's
Speaker 2: a matter of who do you feel the most comfortable with,
Speaker 2: which institutional partner has given you the most comfort around
Speaker 2: believing in your business, believing in your vision, backing the
Speaker 2: management team, hopefully changing things for the better, but not
Speaker 2: changing things are already working right, because things can go
Speaker 2: the other way too. Not everything goes is up into
Speaker 2: the right. And that's part of our job too, is
Speaker 2: just knowing these investors for so long at this point,
Speaker 2: seeing the deals that they're doing, knowing the as people,
Speaker 2: we can advise the clients on who their best partners
Speaker 2: are going to be.
Speaker 1: So is it common for restauranteurs to maybe accept a
Speaker 1: lower bid for their business because they think that person
Speaker 1: or the pe firm would make a better partner for them,
Speaker 1: or give that that bidder a chance to maybe raise
Speaker 1: their bid in the process.
Speaker 2: Yeah. So look, if you're if you're selling a one
Speaker 2: hundred percent off your company today, then and you're going
Speaker 2: to be completely cashing out, which in founder own businesses
Speaker 2: often not the case. If you're a founder, you're you're
Speaker 2: going to have to roll a good chunk of your equity,
Speaker 2: even if you're the minority, is going to have to
Speaker 2: be a good chunk of equity into the next deal
Speaker 2: with the new partner. If you're but if you are
Speaker 2: selling your business one hundred percent, uh, then then most
Speaker 2: people I think op for max cash, but look, everybody's different.
Speaker 2: There are some people who would say, yeah, I want
Speaker 2: max cash. But also this is also my legacy, this
Speaker 2: is mine. My name is attached to this, this company,
Speaker 2: and I want this to survive, and I want this
Speaker 2: to thrive, and I want I want the mission and
Speaker 2: the culture to to is more important than anything else
Speaker 2: for me. So there are folks like that who who
Speaker 2: will pick lower valuations because it's going into the right
Speaker 2: hands and somebody who's going to respect what the company
Speaker 2: stands for. But if you are UH rolling a piece
Speaker 2: of or a chunk of equity into the next deal
Speaker 2: as a founder, I think it is incredibly important who
Speaker 2: your partner is you are going to be. You know,
Speaker 2: somebody asked me a question, Mike. I was in a
Speaker 2: panel r DC a couple of years ago and somebody
Speaker 2: my topic to discuss was what what makes it good
Speaker 2: UH institutional partner for a business? And I put up
Speaker 2: ten points which when I read through them and then
Speaker 2: I disclosed the source, it was marriage dot com. Right,
Speaker 2: But it is true you have to what you're getting
Speaker 2: into oftentimes is a five year marriage. You're going to
Speaker 2: be at the table, discussing a lot of topics and
Speaker 2: some difficult topics about the company and having that shared vision,
Speaker 2: that shared goal is instrumental in it being a real
Speaker 2: working partnership over the next five, six, seven years. So
Speaker 2: if you are rolling equity, I would say yes, value
Speaker 2: obviously is important. Nobody wants to give up millions of
Speaker 2: dollars and say goodbye to it. But think about the
Speaker 2: next five years. Who are you working with. What are
Speaker 2: they going to bring to the table? Are they going
Speaker 2: to carry on the mission the values of your business,
Speaker 2: to maintain the culture, take care of its employees while
Speaker 2: investing in growth. That is the combination that you want.
Speaker 2: And if you can find somebody who does that, then
Speaker 2: hopefully it should be a very successful marriage over the
Speaker 2: next five to seven years. Cool.
Speaker 1: All right, let's wrap this up by talking about some
Speaker 1: of the successful merging brands. Will circle back to some
Speaker 1: of those brands you mentioned at the top. Kiasushi, Yeah,
Speaker 1: is that you know? What are they doing? How are
Speaker 1: they rocking it?
Speaker 2: So? I actually ate at a Kora Sushi uh this
Speaker 2: this week. Actually they opened one very close to my house. Finally,
Speaker 2: I live in the suburbs of Chicago, so I was
Speaker 2: glad that I could just drive ten minutes and not
Speaker 2: have to drive all the way to Schomburg to get
Speaker 2: my Kura Sushi picks. When Kurasushi went public, you know,
Speaker 2: at first glance, it was here's a small, you know,
Speaker 2: handful of restaurants or dozens of restaurants, and they're calling
Speaker 2: us and saying we want to go public. And my reaction,
Speaker 2: working at a big, large institution like Bank of Montreal,
Speaker 2: was deals to small. You know, I don't know if
Speaker 2: the restaurant markets open. Just everything that every other banker
Speaker 2: was saying right that the restaurant market is open, the
Speaker 2: deals too small, the company is not ready, et cetera,
Speaker 2: et cetera, And I, you know, I just decided I'm
Speaker 2: going to get on a flight and go out to
Speaker 2: a thing with San Francisco and just just uh, actually
Speaker 2: I think of San Francisco, just meet with the company
Speaker 2: and see check out the restaurants. And then when we
Speaker 2: were at the restaurants, I realized there's nothing else out
Speaker 2: there like this. Sure in Japan there are you know,
Speaker 2: the two hundred four hundred Core Sushi and the whole
Speaker 2: bunch of other you know, revolving sushi chains. But here
Speaker 2: in the US, the authentic experience, the enjoyable experience that
Speaker 2: they were delivering was nobody was doing it, and it
Speaker 2: was you know, there's you know, we've had other companies
Speaker 2: like Yo Sushi come in with the revolving chains and
Speaker 2: and others, but this was just so authentic. And the
Speaker 2: second thing we noticed was, I'll make two other points
Speaker 2: about that business. One was technology, and it wasn't technology
Speaker 2: for the sake of technology, wasn't. It wasn't technology where
Speaker 2: we have a big marketing list anybody can have that.
Speaker 2: You know. This was true technology and it wasn't AI
Speaker 2: or anything of that sort. It was technology that did
Speaker 2: the two things that I care about and I think
Speaker 2: investor should care about. Does this technology improve my guest
Speaker 2: experience and therefore drive a higher higher sales check second,
Speaker 2: does this technology reduce my operating costs and drive more profitability?
Speaker 2: Check right? And Kurusushi was doing both of them. Their
Speaker 2: kitchen operations with you know, the sushi making machines, the
Speaker 2: plates coming automatically back into the through the water channels
Speaker 2: and getting cleaned up the ordering process that the fewer
Speaker 2: folks you needed on the floor to take orders. Now
Speaker 2: they've introduced robots, which I was very fascinated by this
Speaker 2: this last couple of days ago. That's what the magic is.
Speaker 2: The magic is that there's it is a highly highly
Speaker 2: authentic experience without without alienating people. It's it's it's a
Speaker 2: fun place. It has health uh health and wellness aspects
Speaker 2: to it given it's you know, uh a lighter calorie food, uh,
Speaker 2: less baths, seafood and uh it's just a highly enjoyable experience.
Speaker 2: Kids can love it because you know, you go, you
Speaker 2: go when you get your toys, if when you when
Speaker 2: you eat a certain number of plates. They've since added
Speaker 2: the buty to just buy a toy on the screen
Speaker 2: instead of having to eat fifteen places to get a toy.
Speaker 2: And I think that's that that helps, right, But it's
Speaker 2: it is that uniqueness, the authenticity without alienating people. Uh,
Speaker 2: the strong unit economic model that they have built. Uh
Speaker 2: they're you know, they use technology to monitor their stores.
Speaker 2: Instead of having all these area managers, they are able
Speaker 2: to manage to to watch their stores through camera feeds
Speaker 2: at the headquarters and make sure stores are being managed properly,
Speaker 2: they are clean. There's just so many aspects of the
Speaker 2: business are that are completely different from anything else out
Speaker 2: here in the US, and they have an exceptional job
Speaker 2: of executing on their growth.
Speaker 1: Nice What about Candado Tacos.
Speaker 2: Condato Tacos was and is a beast, you know, without
Speaker 2: getting into the details too much of the of the
Speaker 2: given the private nature of these transactions, you know, we
Speaker 2: sold Candata Tacos when it had eleven or thirteen units
Speaker 2: at the time, and what they were offering their guests
Speaker 2: was a Their slogan has come as you are right,
Speaker 2: you can come anytime, you can be whoever you are,
Speaker 2: and you can get a amazing taco along with beers, margarita,
Speaker 2: a huge selection of alcohol for a very reasonable price. Right,
Speaker 2: but there's no cutting back on quality of the food.
Speaker 2: If if you are readers have the listeners have not
Speaker 2: been doing douta Tacos A highly recommend it. It is
Speaker 2: an amazing experience. Every store is unique with graffiti walls
Speaker 2: that are unique to eat store. The food is highly
Speaker 2: highly innovative. It's it's it's what if if Taco Bell
Speaker 2: had a fast, casual casual dining baby and and and
Speaker 2: and wanted to send well alcohol, That's what Conductor Tacos
Speaker 2: would be, right and you got, You've got an amazing food,
Speaker 2: very innovative. You can get double decker tacos just like
Speaker 2: you get a taco bell, right, you can uh uh,
Speaker 2: there's always something new on the menu. The alcohol is
Speaker 2: significant portion, uh. But from a consumer perspective perspective, you
Speaker 2: can go any time of the day. You can you know,
Speaker 2: meet up friends after work and go for a drink
Speaker 2: and some chips and guac. You can go with with
Speaker 2: your entire family get case as tacos uh and and
Speaker 2: and have your kind of regular family casual dining meal.
Speaker 2: Or you can go late night and hang up with
Speaker 2: your buddies and bachelord parties, bachelor parties. It just fits
Speaker 2: a lot of people's lifestyles. And you and you can
Speaker 2: show up an your little lemon workout gear, right and
Speaker 2: it's and it's and you're fine, come as you are.
Speaker 2: Why Candado was was that transaction was so successful was
Speaker 2: because it did exactly what I talked about earlier what
Speaker 2: makes a successful organization a successful restaurant brand. Uh. They
Speaker 2: had thirteen units across I think four or five markets.
Speaker 2: The unit economics were exactly the same across each of
Speaker 2: those different markets. And these are across three different states
Speaker 2: these markets. At that point, they had an amazing management team.
Speaker 2: They were doing something that was highly unique, but also
Speaker 2: very broad in its scope. In terms of attracting guests,
Speaker 2: it wasn't very uh, it wasn't here's a fifteen dollars taco, right,
Speaker 2: and only a few people can afford it. These were,
Speaker 2: i think at that point, like three dollars talkers or
Speaker 2: something like that, and that business has continued to expand.
Speaker 2: I think one of the other key things about the
Speaker 2: business that was highly attractive was the food service model.
Speaker 2: They heavily rely on a commissary, which helps keeps operating
Speaker 2: costs low at the store and really leverage the labor model,
Speaker 2: and that also helps drive faster check times and get satisfaction.
Speaker 1: Yeah, it seems like it's working pretty well for Charlie
Speaker 1: Morrison and Seal It and Go, Yeah, doing the same thing. Awesome.
Speaker 1: And finally Pinstripes, I got to spend some time with
Speaker 1: Dale at ROLLC. I got to spend a lot of
Speaker 1: time with him. I love his passion for the business.
Speaker 1: Can you talk about Pinstripes and the specific role you
Speaker 1: played in that deal.
Speaker 2: Yeah, So on pin Stripes, I've known Dale for several years.
Speaker 2: Now I live in a town that is five minutes
Speaker 2: seven minutes down the road from Dale's headquarters, the original
Speaker 2: pin Stripes. My family are there often and I know
Speaker 2: Dale always had a the thought that being a public
Speaker 2: company is the right outcome for pin Stripes and and
Speaker 2: finally it was achieved end of last year. Look, I
Speaker 2: think on pin Stripes, our role was we were advising
Speaker 2: Middleton Partners, which is the the energy behind Banion the spack,
Speaker 2: and we advised Middleton raised capital to make an investment
Speaker 2: into Pinstripes that whether the I p O got done
Speaker 2: or not, the capital would be used by pin Stripe
Speaker 2: for further growth. So we helped raise that capital. Our
Speaker 2: our key job on that was to create the marketing
Speaker 2: story that was needed to demonstrate to investors that you
Speaker 2: know eventually be used as part of this pack as well,
Speaker 2: but to develop that the storyline of why this business
Speaker 2: is unique, it's special, and it's highly needed in today's environment.
Speaker 2: If you if you think about what has happened in
Speaker 2: the real estate landscape over the last decade and a half,
Speaker 2: it's it's since basically Amazon's emergence as the dominant retailer
Speaker 2: in this country. We've seen Seiars go bankrupt, We've seen Macy's,
Speaker 2: JC Penny's shutting down stores, Laden Taylor, I mean, the
Speaker 2: list goes on and on and on. And these are
Speaker 2: all your anchor tenants at your class A malls. And
Speaker 2: as these stores have shut down, they've left huge gaps
Speaker 2: in that in that in that retail location. So how
Speaker 2: do you fill it? How do you how do you
Speaker 2: get consumers to come back, guests to come back and
Speaker 2: shop at your location. So what a lot of these
Speaker 2: mall operators have been doing is trying to find a
Speaker 2: way to convert these into lifestyle centers, into destinations in
Speaker 2: and of themselves. But to convert that, you still have
Speaker 2: this huge building that remains empty. So you need a
Speaker 2: large box concept that can go in there, take up
Speaker 2: that space, drive traffic. Because the lifestyle entertainment nature of
Speaker 2: pin Stripes and hopefully that benefits all the other tenants
Speaker 2: in that location as well. And pin Stripes, given its
Speaker 2: very family friendly orientation, it's not just bowling, it's not
Speaker 2: just bachi. It also has some amazing cuisine. They were
Speaker 2: uniquely suited to go fill out that that big gap
Speaker 2: in that in that real estate and drive traffic back
Speaker 2: in the stores, and you know they're back by obviously
Speaker 2: a lot of uh mall operator as well, just for
Speaker 2: that reason. But now Pinstripes finally has access to capital
Speaker 2: to to really add fuel to the fire and kind
Speaker 2: of continue that growth that they need. These are not
Speaker 2: cheap boxes. They cost a pretty penny to build, but
Speaker 2: they hopefully generate a lot of profits too. So I
Speaker 2: think this was the really awesome outcome for Pinstripes to
Speaker 2: be a public company have actually the capital, because I
Speaker 2: think that is needed as the regular retail model operators
Speaker 2: continue to continue to have challenges.
Speaker 1: Yeah, that's great. The Italian side of me appreciates, you know,
Speaker 1: BATCHI getting you know, a broader audience. It's a great game.
Speaker 2: Yeah. Yeah. Hey, they've got some really good Italian cuisine too.
Speaker 1: Very cool. Yeah. I'm looking forward to again to all
Speaker 1: three of those. Unfortunately I haven't had a chance to
Speaker 1: get to any of them yet, but hopefully soon. Thanks again,
Speaker 1: A Sheish here a rockstar man. I really appreciate your
Speaker 1: insight and I really appreciate your love for the industry
Speaker 1: because I feel the exact same way.
Speaker 2: Nothing else I would rather be doing.
Speaker 1: For sure man? So where can the audience go to
Speaker 1: find out more about Harrington Park Advisors.
Speaker 2: You can go to our website Harrington Parkadvisors dot com.
Speaker 2: You can visit us on LinkedIn under Hedrington Park Advisors
Speaker 2: as well. You know, follow us on LinkedIn and stay
Speaker 2: up to date on our news. Awesome.
Speaker 1: I want to thank the audience as well. If you
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Speaker 1: for a conversation about cell based meets with Don lewinning,
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