Restaurant investors are sitting on record levels of dry powder. At the end of June 2019, the amount of capital available for private equity fund managers to put to use (known as dry powder) surpassed the $2 trillion (with a “T”) mark.
This, combined with greater competition among private equity firms (nearly 8,000 of them globally, up from less than 5,000 just ten years ago), means many investors are looking to new sectors — particularly those that may have a potential upside because of disruption or consolidation.
While other sectors have seen significant increases in productivity historically, improvements in the foodservice industry have been minimal over the last 30 years. With the Second and Third Industrial Revolutions not having much of an impact on restaurant operations (consumer and electronics products led growth), the sector is now in a prime position to make modernization efforts and — in doing so — becomes a target for investment.
As foodservice companies are increasingly becoming a target for restaurant investors, we are seeing the following:
Like all transformations, a positive outcome following an investment depends on leaders’ understanding of what gives the brand value. It takes more than “good food, good service, good atmosphere” to launch, grow, and maintain a successful restaurant operation, and institutional investors, as well as private equity funds, can often step in to back new concepts or help established chains grow.
These are some of the articles investors looking to enter the foodservice space and operators seeking investment partners should be aware of.
Private Equity firms have found a niche in the restaurant industry, where a slew of high-profile deals have made their mark in recent years. We cover their activity in North America, Europe, the Middle East and Africa, Asia Pacific, and South America.
Restaurant investors are holding $110b in publicly traded restaurant stocks. Asset management companies account for 13 of the top 15 companies in the list, and two groups are used to acting as activist investors.
Public markets are another way for companies to obtain liquidity. A slew of restaurant chains have made their initial public offerings in the past few decades. For some, the move has paid off. But for others, the future is a little more murky.
Foodservice companies are increasingly turning to different sources to fund their restaurant expansions.Investors are showing more and more interest in middle-market operations, defined as businesses with between $500m and $1b in enterprise value. In the U.S., middle-market companies make up 74.1% of all PE-backed company inventory.
There’s been a lot of investor interest in the restaurant industry as of the last ten years, and for good reason: even when economies around the world struggle, consumers continue to dine out. And even though habits might change and trends might shift, the global restaurant industry remains a force. Still, with so much Venture Capital, Private Equity, and commercial loans flowing into the space, restaurant due diligence is increasingly important.
Aaron Allen & Associates works alongside senior executives of the world’s leading foodservice and hospitality companies to help them solve their most complex challenges and achieve their most ambitious aims, specializing in brand strategy, turnarounds, commercial due diligence and value enhancement for leading hospitality companies and private equity firms.
Our clients span six continents and 100+ countries, collectively posting more than $200b in revenue. Across 2,000+ engagements, we’ve worked in nearly every geography, category, cuisine, segment, operating model, ownership type, and phase of the business life cycle.