While running Koo Koo Roo and Famiglia Toscana Rosti, operator John Kaufman admired the fast-casual Pat & Oscar’s from afar, especially for the chain’s cult-like following in the San Diego market and its family-targeted value positioning. With business partner Tim Foley, the duo attempted to acquire the 19-unit chain two years ago, but owners Pacific Equity Partners accepted another offer. Yet, when that buyer’s financing fell through in 2007, Kaufman and Foley made another play for the chain last year.
Tight credit markets kept them from garnering the needed funds, so they executed a management buyout deal with the seller that closed in January. While deal terms are undisclosed, Kaufman became CEO and president of the chain and Foley became vice president. In time, Kaufman said Pat & Oscar’s will solicit outside investments to fuel future growth.
What made Pat & Oscar’s such an attractive catch?
When I was president of Koo Koo Roo, I was jealous, frankly, of Pat & Oscar’s because they’d figured out the family side of fast casual. It’s always been a tremendous value to the customer, and if you ask any restaurant investor who understands brand equity, they’ll tell you [Pat & Oscar’s] has tremendous legs.
Can you explain how the deal was financed?
We faced tight credit, so we worked out a management buyout. We did [use] some bridge loan funding to get things moving in the right direction, but that’s all we’re going to say about that.… What’s important to know is [the seller] wanted to make sure that key individuals would be taken care of in the deal. Our plan is to have ownership all the way down to the hourly supervisor level.
Did you consider venture capital help?
We were not willing to do that at the outset because we believed getting it right is crucial for ourselves and for the company’s future. Once we get Pat & Oscar’s a little more positive, say in six months, we’ll start looking for more equity players. A good investor needs to be able to look at the company and see that we’ve got a good long-term strategy.
