In a deal closed earlier this month, Brazos Private Equity Partners teamed with the management of Cheddar’s Inc. to purchase the Dallas-based restaurant group for what Brazos Partner Randall Fojtasek said cost just “just under $100 million.”
GE Franchise, a subsidiary of GE Capital, provided senior debt for the purchase. As majority owner, Brazos contributed equity from its inaugural fund, Brazos Equity Fund I, a $400 million vehicle closed two years ago. Cheddar’s marks the seventh Brazos investment utilizing this fund. Fojtasek said Cheddar’s management team is a significant minority investor, but declined to get more specific.
“We initially engaged in a dialogue with Cheddar’s as a consultant, but over the last 12 months, we saw how compelling the opportunity actually was,” said Fojtasek. Once Brazos learned Cheddar’s had a group of minority shareholders looking for an exit, Brazos shifted gears and moved to gain control. With Brazos already entrenched, Cheddar’s never went to auction.
Cheddar’s resides in the casual dining sector, which, according to Fojtasek, is defined by a ticket price between $8 and $20 and serves alcohol with the food. “Unlike the quick-serve sector, which has struggled recently, the casual dining sector has seen strong and steady growth driven in part by the number of women in the workforce,” he said. “And on an inflation-adjusted basis, it’s actually cheaper to eat there today than it was five years ago.”
According to Fojtasek, even the low U.S. inflation rate is outpacing Cheddar’s price increases. From 1989 to 2002, the average check price at Cheddar’s increased from $9.49 to about $10-a 1.6% increase-while the U.S. inflation rate increased at a rate of 2.6% during the same time period. One way the chain keeps cost down is avoiding advertising costs. “The management team is focused on cost control, and creating a value for customers,” he said. “Cheddar’s calls it Putting it on the plate.'”
Founded in 1978, Cheddar’s has 18 company-owned locations in five states and an additional 24 restaurants in 10 states. Revenue for all 42 locations will top $150 million this year. Brazos is acquiring them all.
“We will continue to build new stores,” said Fojtasek. “Historically, Cheddar’s has built one or two new stores per year, and we’d like to see three or four, but we’ll see what makes sense.” Other growth plans include the expansion of Fish Daddy’s, a seafood-themed restaurant.