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Altamont charts growth of newly acquired Cotton Patch Cafe

  • Similar deals have gone for 8.5x to 9.5x EBITDA
  • Altamont eyes expansion in Texas, Southeast U.S.
  • Looks to maintain culture and consistency of brand

Altamont declined to comment on the purchase price multiple in its deal for the Southern food restaurant chain with locations in Texas, Oklahoma and New Mexico.

But a GP active in the consumer restaurant space said similar deals for non-franchised restaurant businesses often sell for about 8.5x to 9.5x EBITDA, depending on the growth rate.

Altamont didn’t provide any details on past growth at the Cotton Patch Cafe, but with 45 restaurants after 26 years, it has added about 1.7 locations a year since the company was founded in 1989.

“We’ll approach new store development responsibly in order to maintain the culture and consistency of the brand,” Altamont co-founder and Managing Director Randall Eason told Buyouts via email.

Piper Jaffray & Co advised Cotton Patch Cafe on the deal. Ropes & Gray LLP represented Altamont. 

Altamont was founded by former executives at Golden Gate Capital. The Palo Alto, Calif.-based firm already has food chain exposure in its portfolio through Tacala/Boom Foods. Tacala ranks as the largest franchisee of Taco Bell restaurants in the U.S. with 247 in the southern United States. Boom is a regional franchisee of Sonic Drive-Ins with 66 restaurants in four of Tacala’s seven states.

Eason said Altamont continues to sift for fresh deals, possibly in the consumer space, where it can partner with management teams.

Cotton Patch’s founders, Larry Marshall and Michael Patranella, opened the company’s first location in Nacogdoches, Texas. They said Altamont Capital ranks as “the right partner to help bring it to many more communities in the future.”

Cotton Patch CEO Kathy Nelson, who held past leadership roles at Pizza Hut, Pillsbury, and General Mills, invested with Altamont in the transaction.

Buttressing the case for the sector, Robert W. Baird & Co’s Brian McDonagh said deals for consumer businesses remain in strong demand, along with technology, industrial and healthcare firms. See related story.

In another sign of interest in food chains, Leonard Green & Partners-sponsored Shake Shack debuted its initial public offering at $21 a share for proceeds of $105 million on Jan. 30. The stock has since traded up to nearly $43 as of Feb. 19.