Skip navigation
Private-equity firms flex savings clout in downturn

Private-equity firms flex savings clout in downturn

It’s never too late to lend a helping hand.

Occasionally viewed as buyout-hungry titans or financial engineers, private-equity firms these days are stepping into the role of white knight by using their expertise to help portfolio companies survive the economic storm.

By implementing supply chain programs or simply using the vast expertise of various holding companies to find best practices, these restaurant owners are helping operators save money and build sales.

At Sun Capital Partners Inc., one of the largest restaurant collectors, the Boca Raton, Fla.-based firm’s foodservice brands together have inked a beverage contract, reduced costs on shipping and aggregated certain health care benefits. Sun and its portfolio companies also are looking to use the same synergies to purchase commodities and further reduce health care costs.

“These are the kinds of things you’re looking for to save money where you can,” said Jim Greco, chief executive at Bruegger’s Enterprises Inc., a holding of Sun Capital.

Greco said one new contract related to credit card-processing fees reduced expenses in that area by 25 percent. Total savings from programs that Sun Capital helped to facilitate through its restaurant companies could result in hundreds of thousands of dollars in savings for a company Bruegger’s size, he said.

In 2008, Burlington, Vt.-based Bruegger’s, which operates or franchises 288 bakery-cafes, booked systemwide gross sales of $198.9 million.

“Even more, 2009 will be the first full year of benefits,” Greco said, referring to the purchasing contracts that Sun Capital closed throughout 2008. “So it’s very timely considering today’s economy.”

At Sun Capital, efforts to facilitate industry synergies began in 2006 and 2007, when the private-equity firm purchased numerous restaurant companies. The firm snatched up some of its largest holdings—Boston Market, Friendly’s and Real Mex Restaurants—in those two years, bringing its total restaurant count across all brands to about 2,350 locations.

The firm decided to create a procurement group to focus on some of the largest areas of spending, and determine where a cooperative purchasing strategy could benefit holding companies. Sun Capital tapped Charles P. Megan, an executive who had served as chief executive for some of Sun Capital’s holdings, to head a small three-person procurement team.

“We started where a lot of companies start, in small-package shipments, office supplies, light truck loads or freight,” he said. “Those were our initial forays before we grew into larger categories to benefit more and more companies.”

For the restaurant group, one of the largest areas was health care benefits.

Still a work in progress, Sun Capital has helped to aggregate self-insured companies under a handful of insurance carriers, so that they could benefit from lower fees without changing the benefits employees receive, Megan said. Sun Capital also worked with fully insured companies to aggregate their spending.

“If I was to point my finger at where I think we can save the most money, or at least can reduce increased expenses, it would be health care,” he said.

But it is not an easy task to combine the various corporate spending plans, unique supply chains and individual product specifications of 10 restaurant portfolio companies. Meetings had to be facilitated, data had to be collected and distilled, and the restaurant companies themselves had to agree to certain terms for the whole group, so that all could benefit.

In October of last year, six of Sun Capital’s restaurant brands—Boston Market, Bruegger’s, Fazoli’s, Friendly’s, Garden Fresh and Smokey Bones Restaurants, which together totaled 1,750 locations—signed a beverage deal with a major supplier. Not only were cost savings involved, but Megan said the deal also will help facilitate sales and help companies benefit from the supplier’s expertise.

“We believe strongly that it’s not only about capturing dollars on the table but also looking at how to build business, how to build sales,” Megan said. “The objective is always to create value, to create earnings.”

Future areas that Sun Capital will work on include commodity purchases of cheese, poultry, vegetables, pork and beef, as well as staples including beverage cups and small wares.

Across all of its industry holdings, Sun Capital has seen savings of 5 percent in health care, between 8 percent and 15 percent in transportation, and between 7 percent and 12 percent in ocean freight.

“Each contract has made progress in showing that this diverse group of restaurants can work together and accomplish something,” Megan said. “We like that our smallest companies are getting the same benefits as our largest.”

At Palladium Equity Partners in New York, synergies between portfolio companies don’t always have to be within the same industry. Palladium’s portfolio includes Taco Bueno, the 170-unit quick-service chain based in Dallas. Other foodservice holdings include Wise Foods Inc. and Sahale Snacks, both of which are snack manufacturers, and Castro Cheese Co. Inc., a maker and distributor of Hispanic cheeses.

“The benefit of having investments across industries is that you can garner unbiased perspectives,” said Luis Zaldivar, a principal at Palladium Equity Partners.

Zaldivar pointed to commodity purchasing and real estate strategies as two of the largest practice areas that synergies can be found among portfolio holding companies.

“You can leverage what you’re seeing across different companies to provide better perspective,” he said. “You can dive in a lot deeper.”

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish