PRIVATE EQUITY SNAPS UP ANOTHER MAJOR RESTAURANT CHAIN CONTINUED...
FINANCE
And I wasn’t the only one who thought of it.
The reaction is a testament to the reputation private-equity firms have in the finance space. Some of the year’s most notable bankrupt- cies can be traced to one or two of those aforementioned bad deci- sions. There’s Red Lobster (a bad sale-leaseback) and TGI Fridays (excessive debt) and pick-your-fast- casual-chain (expensive leases). The key for Blackstone is to just let things be and enjoy the fruits of its investment. It is spending a large amount of money to acquire one of the best growth chains in the restaurant industry. Changing that too much could indeed ruin much of what has made the brand suc- cessful. Jersey Mike’s is thriving largely because of owner Peter Cancro’s willingness over nearly 50 years to go against the grain and do what he believes is right for the business. The company has developed a cul- ture that has enabled it to gain sig- nificant market share from the giant Subway while it outpaces all other fast-casual sandwich rivals. The brand operates with a rel- atively simple menu, particularly compared with rival Subway and its massive set of offerings. It nota- bly funded franchisees’ remodels, a decision almost unheard of in a franchise in which the franchisor doesn’t own a piece of the real es- tate. The company’s quality, its mar-
keting and those remodels drove unit volumes so high that the com- pany more than made up for its re- model spending with the additional royalties. But it’s difficult to imagine a private-equity owner signing off on such a move. Then again, it’s also difficult to imagine public stock investors sign- ing off on such a move. Activist in- vestors will often pounce on what they see as excessive capital spend- ing. Any sort of slump after such an investment could bring some form of recrimination. The sale also marks a much big- ger move into the franchise restau- rant space by Blackstone, which has made a number of notable deals re- cently for franchised companies. It is a big investor in 7 Brew. It paid a big multiple for Tropical Smoothie Café earlier this year. It now has a new “flagship,” as it calls it, in Jer- sey Mike’s. While the market for buying ac- tual restaurants remains weak, even if there are signs of improvement, private-equity firms and other buy- ers will almost always snap up a franchise and that profitable royalty stream. This year probably demon- strates that more than any other. But there is no reason that Jersey Mike’s cannot thrive with a differ- ent owner from the one it’s had for more than 50 years. Blackstone just has to let the company do what it al- ways has.
Indeed, skepticism was a rather common reaction to the news.
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RESTAURANT BUSINESS JANUARY 2025
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