Steve Romaniello, managing director at Roark Capital Group and chairman of Focus Brands, is eager to get a center-of-the-plate concept into the private-equity firm’s portfolio.
After securing $1 billion for Roark’s second institutional fund last year before the economy spiraled downward, the firm is looking to invest in more franchised businesses with strong management teams that it can help grow. Its largest restaurant holding, Focus Brands, operates or franchises nearly 2,200 locations under the Carvel, Cinnabon, Schlotzsky’s, Moe’s Southwest Grill and Seattle’s Best Coffee brands.
“While many firms are pulling back and cutting staff, we’re gearing up and actively seeking investment opportunities of all sizes and types, across all sectors, including franchisors and proven large-scale multiunit franchisees,” Romaniello said earlier this summer in a statement. “Because of our conservative approach to capital structure, we’re an ideal partner for franchisors and franchisees considering a liquidity event, seeking growth capital or other investment opportunities.”
Roark is a growth investor that typically looks at companies booking recurring earnings before interest, tax, depreciation or amortization near the $5 million mark.
Prior to his work at Focus Brands, where he started as a president of the Carvel chain until he became chairman of the parent company, Romaniello was president and chief operating officer of U.S. Franchise Systems Inc., a hospitality company that operates hotel brands, including Microtel Inns & Suites.
What is Roark looking for in a new investment?
We have $900 million left to invest and are looking forward to finding really neat franchise companies and great management teams. We’re looking aggressively at franchisees as well.
Roark seeks good brands that are well-positioned, with the wind at their back. There is no area of the industry that we’re ignoring—although the upper end, maybe that is not our strong suit. There will be a place for casual dining going forward, depends on which brand and where the units are positioned. From a portfolio standpoint, we would love to be more in the center of the plate.
Have you seen the financing environment open up a little?
We’re seeing some national guys get back in, but it is not widespread. With very few exceptions, the expectations or terms are still difficult for franchisees, so any improvement has been very marginal at best.
To help, we’ve been doing our best by being as creative as we can, working with lenders on a deal-by-deal basis, financing portions of application fees, helping to reduce equity requirements and creating direct pools of financing for our brands with Roark’s support.
But it hasn’t been enough to really move the needle. Small amounts aren’t helping [close many deals]. Fundamentally, we need to talk to the right people for the long term.… We’ll grow slower this year, not as robust as we had hoped, but that’s OK.
What are you doing to help franchisees in this environment?
What Roark does, fundamentally, is partner with talented, motivated, passionate management teams. There are certain philosophies we bring to the table, but we are longer-term, more patient investors. We are not heavy users of debt, and our management teams have a capital structure that allows them to operate without having to worry about banks or other lenders so they can focus on operational excellence.
More specifically, Roark held its second annual franchise summit, where franchisees from all brands came together to receive leadership training, best practices via functional areas like information technology, real estate or franchise development. We are also looking to leverage our aggregated buying power. We looked to buy office supplies across the portfolio, looked at overnight mail and tackled the low-hanging fruit first before we get to the bigger ideas.
How should franchisee dissent, which has crept up within a lot of systems because of the difficult operating environment, best be avoided?
Some of the things that we do are focus on very heavy communication and transparency. We have monthly conference calls with franchisees, make sure they are in the loop, create open-door policies, and try very hard to work with franchisee councils.
Our brand plans include a look at “FOCUS”—Franchisee, Owners, Customers and Community, and “US,” meaning the associates. We create one major goal against each of these constituencies and then plan each one. Management team bonuses are based on ratings according to that plan, which we try to make a specific as possible—whether it’s menu items, branding, marketing, scheduling of team meetings—and management is judged by franchisees against that plan.