PE Firms Take New Risks as Restaurant Industry Thrives

Anna Graves, a partner in Pillsbury’s corporate and securities practice in Los Angeles and co-leader of the firm's restaurant, food and beverage industry group, explained that private equity players are taking less-than-controlling interests when making their investments in some of the lower-end restaurant groups. She noted that two recent deals she'd seen had been for minority stakes — though just barely, with both in the 40 percent range.

“[It] is interesting because it represents a bit of a deviation from investors historically wanting a controlling interest. ... That [lower stake] is gaining favor,” she said, noting that the deals she had seen were generally for companies with a long-term investment view.

Private equity firms have also begun to invest at earlier stages in a company’s growth cycle. According to Graves, this get-in-early tactic is being increasingly used on fast-service chains that boast a certain “hipness” factor. “I think private equity firms are looking for unique concepts more than they used to, and I think they are going into niches they might not have gone into before.”

Graves added that she expects to see many more private equity deals over the next few months. “There's a lot of auction books floating around, a lot of bidding activity and a lot of letters of intent.”