Spring 2016 www.bdo.com PErspective in RESTAURANTS A FEATURE EXAMINING THE ROLE OF PRIVATE EQUITY IN THE RESTAURANTS INDUSTRY. By Dana Zukofsky Private Equity Hungry for Deals in the Restaurant Sector Stay up-to-date on the latest trends Over the past year, private equity activity has heated up in the restaurant industry. Historically, investors wanted to see proof of concept in multiple markets, minimum revenues, EBITDA, number of units and a good story before they were willing to invest in a restaurant. u  Investors are more willing to share. PE firms But as the sector continues to evolve, investors are increasingly setting aside some of their more stringent standards as they seek to take advantage of emerging opportunities. And private equity firms are not the only ones looking to enter the space. Venture capitalists, other restaurant groups and even non-restaurant companies, such as Ford, are looking to enter the game.

What has led to this change of heart? u  ther sectors are not as attractive. Though the O u  cost of money remains low, and new The concepts have proliferated. PE firms have more to lend and have subsequently become less risk averse.

At the same time, following the wild successes of the fast casual segment, restaurants are exploring new concepts in the hopes of launching the next big thing. As a result, PE firms appear more willing to invest in earlier-stage restaurants, hoping to ride the wave of the sector’s boom in innovation. u  “healthy” fast casual segment is ripe for The investment. Shifting consumer preferences have driven a paradigm shift in the restaurant industry in recent years.

Though many diners on the go are looking for speedy, easy service, they are less willing to compromise on the quality and nutrition of their food. In addition, consumers are interested in knowing where their food is coming from, supporting local sourcing and eating organic. This has created significant growth opportunities for fast casual restaurants and, with the trend set to continue for some time, PE firms are eager to enter the market. typically prefer to seek out deals that allow them to maintain full control—or at least a majority—of the investment.

But competition for restaurant deals can be fierce, and PE firms must be nimble in order to quickly jump on opportunities and take advantage of the industry’s growth now. With time at a premium, investors are seriously considering going into an investment with a smaller piece of the pie, or even sharing with other funds. overall U.S. economy has improved incrementally over the years, many industries remain stagnant or continue to decline, reducing investment opportunities for PE firms in more traditionally attractive sectors like retail and energy.

But the restaurant industry is surging and, with PE sponsors rising and falling on their ability to make a strong return on investment for their limited partners, it comes as little surprise that they are funneling dollars toward this growing market. PE interest, generally speaking, is good news for restaurants looking to grow, scale up or explore new services and concepts. But restaurants being courted by private equity should remain wary, being sure to “date before they marry.” The financials are only one aspect of the relationship between the restaurant and its investors. A shared set of values, goals and vision for the exit is also critical to ensuring that the relationship benefits all parties. Dana Zukofsky is a director in BDO’s Restaurant practice.

She can be reached at dzukofsky@bdo.com. Read more  . PErspective in RESTAURANTS People who know Restaurants, know BDO. www.bdo.com Restaurant Industry Contacts: FRED CAMPOS KEVIN KADEN ADAM BEREBITSKY Miami 305-420-8044 / fcampos@bdo.com New York 212-885-8000 / kkaden@bdo.com Cleveland 440-394-6252 / aberebitsky@bdo.com LENNY DACANAY TODD KINNEY DUSTIN MINTON Chicago 312-730-1305 / ldacanay@bdo.com New York 212-885-7485 / tkinney@bdo.com Cincinnati — Blue Ash 513-587-3285 / dminton@bdo.com JERRY DENTINGER MATT SEGAL Chicago 312-239-9191 / jdentinger@bdo.com Chicago 312-616-4630 / msegal@bdo.com JOE GORDIAN DAN SHEA Dallas 214-969-7007 / jgordian@bdo.com Los Angeles 310-557-8205 / dshea@bdocap.com Private Equity Industry Contacts: LEE DURAN San Diego 858-431-3410 / lduran@bdo.com SCOTT HENDON Dallas 214-665-0750 / shendon@bdo.com JOE BURKE McLean, VA 703-770-6323 / jburke@bdo.com RYAN GUTHRIE Costa Mesa 714-668-7385 / rguthrie@bdo.com TUAN HOANG Los Angeles 310-557-8233 / tmhoang@bdo.com BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 63 offices and more than 450 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,408 offices in 154 countries.  BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

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