2015 Top 100: Private equity firms lead company rankings2015 Top 100: Private equity firms lead company rankings

Private equity firms just keep buying restaurants, and with the results of robust mergers and acquisitions in 2014, the investor groups continued to cement their place among the largest domestic foodservice companies.

To wit: Roark Capital Group. The Atlanta-based private equity firm has made big purchases during the past few years, including its 2013 acquisition of CKE Restaurants, the owner of quick-service brands Hardee’s and Carl’s Jr. Now, according to Nation’s Restaurant News Top 100 data, Roark is the ninth largest foodservice operator in the U.S., ahead of such companies as Yum! Brands Inc. and Brinker International Inc.

There is also Sentinel Capital Partners. The New York-based private equity firm is in the middle of this year’s pack, at No. 48 in Latest Year rankings, but was No. 200 in the Preceding Year, not yet cracking the Top 100. Sentinel went big into restaurants, buying concepts like Huddle House in 2012, Checkers/Rally’s in March 2014 and TGI Fridays in July 2014 – and its restaurant revenue exploded by more than 4,000 percent.

Indeed, six of the seven fastest-growing Top 100 companies are private equity firms, proving once again that growth-through-acquisition is typically fastest.

Top 100 company results are based on U.S. foodservice revenue, including sales from company-owned restaurants and franchise fees and royalties. Because restaurant sales generate more revenue than franchising, Top 100 rankings favor those companies that operate units.

The No. 1 spot went to Compass Group PLC, a London-based contract foodservice operator with $10.8 billion in revenue. The biggest restaurant company is Starbucks Corp., No. 2 in the Top 100 companies, with nearly $9 billion in revenue. McDonald’s Corp. is only the sixth largest company in terms of foodservice revenue, with an estimated $5.6 billion, one spot ahead of Chipotle Mexican Grill Inc., with $4.1 billion. Darden Restaurants Inc., which sold Red Lobster in July 2014, fell from No. 2 in the Preceding Year to No. 4 in the Latest Year after its estimated U.S. revenue fell nearly 18 percent.

Top 100 Companies had a better Latest Year than Preceding Year. The 100 largest foodservice companies collectively took in $143.2 billion in Latest Year revenue, up 7.2 percent from the Preceding Year, when the group collected $133.6 billion.

Through the past two years, the environment has been favorable for investment groups to buy and sell restaurants. Lending costs are low, driven by low interest rates and intense competition among lenders. Investors are favorable on the restaurant business as the economy improves, and because there is a sense that the industry — unlike, say, retail — will not be shaken up by the Internet.

So private equity firms bought restaurants, and that continued unabated last year.

Among the biggest movers in 2014 were Golden Gate Capital, Altamont Capital Partners LLC, Argonne Capital Group LLC and Cerberus Capital Management L.P.
Some investors push for major changes, like refranchising initiatives, for instance, which is also a favorite play for activist investors. As such, restaurant companies continue to operate fewer restaurants in their own brand, which has tempered overall revenue growth among the largest operators.

The Wendy’s Co., for example, saw its domestic revenue fall from $2.2 billion in the Preceding Year to $1.7 billion in the Latest Year.

Private equity is taking advantage of this franchisee market as well, frequently buying many of the restaurants parent companies are putting up for sale. Olympus Partners, No. 14 in terms of foodservice revenue, owns franchisees NPC International (Pizza Hut, Wendy’s) and Pepper Dining (Chili’s). Argonne Capital, No. 31, is also a big owner of franchisees, owning numerous IHOP locations through ACG Texas, Sunshine Restaurant Partners and Peak Restaurant Group, as well as Applebee’s locations, through Neighborhood Restaurant Partners.

All that said, the highest-ranking newcomer to the Top 100 companies is not a private equity group, and nor is it a foodservice operator. It’s a pension plan — the Ontario Teachers’ Pension Plan, which last year invested in the country’s largest franchisee, Flynn Restaurant Group, owner of Applebee’s and Taco Bell units.

Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze