The unprecedented wheeling and dealing among private-equity players in the restaurant industry has had me wondering for some time now, how can I get in on the action?
Well, quite simply, I can’t.
I can’t own any restaurant stocks; it would be a conflict of interest. Even if I could, I still wouldn’t be able to enjoy the billion-dollar deals making some private-equity executives and restaurant owners very rich—and that would bother me if I were a shareholder.
The rash of public buyouts, especially amid strong, well-developed concepts that are experiencing downturns, begs the question: Why sell out at a depressed price during a slump, only to see the new private-equity owners snatch up an undervalued concept and then make a bundle in a few years when operations turn around?
We’ve seen it happen at Burger King and numerous times at Aramark, and we most likely will see it happen at Outback Steakhouse, Applebee’s and Wendy’s. We may even see it happen at The Cheesecake Factory, Brinker International and B.J.’s Restaurants, some observers say.
Even if private-equity owners put in significant amounts of time, energy and money into a turnaround, why can’t shareholders also reap the rewards? After all, it was shareholder money that had helped companies to expand, pay out those hefty executive salaries and fund those corporate jets. It was shareholder money that helped create a brand private-equity money found attractive in the first place.
I’m not the only one asking these questions, and some investors finally have made enough noise that a new deal structure has started to gain traction—one that allows shareholders a piece of the private-equity game.
Kohlberg Kravis Roberts and the private-equity arm of Goldman Sachs, two funds that are active in the restaurant sector, have made an $8 billion bid to purchase Harman International, maker of high-end speakers and home theater systems. In an obvious concession to shareholders, KKR and Goldman also have offered Harman stakeholders a chance to retain as much as 27 percent of the company.
Such a move was suggested, but not used, in the buyout of Clear Channel Communications. The two buyers, Bain Capital and ThomasH. Lee Partners, also active in the restaurant space, offered shareholders a chance to keep a stake as a way to sweeten a proposed $26 billion offer. The price eventually was raised to $27.6 billion, and shareholders agreed to sell without keeping a piece of the pie.
To borrow a phrase from McDonald’s, “I’m lovin’ it.”
It’s not a fool-proof plan. Corporate turnarounds take time and are not guaranteed, so investor money may be lost in the long run either way. Still, the chance to sit at the table, and quite possibly win big, is a chance I would be willing to take, especially when the other option is to fold and let others play with your chips.
