P.J. O’Rourke once mused, “Imagine if all life were determined by majority rule. Every meal would be a pizza.” This wasn’t necessarily an optimistic rumination from the journalist, but it could help explain the LBO industry’s current craving for the Neapolitan.
Private equity has rushed into the pizza space. Centre Partners just acquired Uno Restaurant Holding Corp., Blue Sage Partners bought Mr. Gatti’s, Levine Leichtman Capital Partners has been an investor in CiCi’s Pizza for a little over a year now, and Bain Capital achieved a partial exit from Domino’s last year through an IPO. And most recently, Bunker Hill Capital acquired Papa Gino’s from the portfolio of BancBoston Capital.
To acquire the company, Bunker Hill tapped Madison Capital to arrange a $15 million credit facility, with Wells Fargo participating in the financing. Hartford Investment Management and Roynat Capital supplied approximately $19 million of subordinated financing. Bunker Hill would not comment on purchase price, but the firm typically invests between $15 million and $25 million per transaction.
For Bunker Hill, the acquisition is a reunion of sorts. The firm was formed in 2003 when Mark DeBlois, Robert Clark, Theresa Nibi, Charles Miller and Jason Hurd split from BancBoston Capital to launch the new firm. The former Fleet Bank private equity arm had originally invested in Papa Gino’s in February 1997 as part of a recapitalization. In the deal, the firm joined existing investors Berkshire Partners and McCown De Leeuw & Co., and in late 2003 BancBoston gained a control stake through another recapitalization.
What was one of the last deals for the partners at BancBoston is the first deal for the team at Bunker Hill, and the intimacy with the property certainly helped make the team comfortable. “We spun out of BankBoston, so we were familiar with the company and the management team,” DeBlois, a managing partner at the firm, told Buyouts. He added that Papa Gino’s CEO Tom Galligan also sits as a member of Bunker Hill’s executive network, which made the firm a natural destination for the pizza chain.
The investment is a classic buyout, according to DeBlois, who credits Papa Gino’s established presence in New England for the chain’s consistent growth. “It is very predictable in terms of cash,” he said. “We’ll only invest in [restaurant] concepts with several hundred units that are strong cash-flow generators. If you’ve got a restaurant that’s established and you’re not investing capex into opening new businesses than the sector can really lend itself to buyouts.”
Through the investment Bunker Hill gained control of both Papa Gino’s, which has 150 company-owned restaurants throughout New England, and D’Angelo Sandwich Shops, which controls 144 company-owned locations and franchises out 56 other locations. Papa Gino’s has also licensed out 12 locations, giving the brand a presence in Fenway Park and Gillette Stadium. Both outfits, Papa Gino’s and D’Angelo, have been steady growers, with Papa Gino’s posting 5.5% same-store sales growth last year, and D’Angelo showing comparable store growth of 2.5 percent.
While the Papa Gino’s name has become a New England institution, there are plans to slowly trek into New York and beyond. There is already an agreement in place to franchise 31 D’Angelo locations to an Albany, N.Y.-based group, which will scatter the locations between Hartford, Conn. and Albany. Bunker Hill will also explore franchising out the Papa Gino’s name and the investors see other opportunities in selectively combining the two restaurants to employ a dual brand strategy in certain areas with one storefront and one common kitchen. Further, some of the Papa Gino’s-owned D’Angelo are undergoing a remodeling initiative to employ a new interior and signage.
The New England Pie
When it comes to pizza, Chicago is known for its deep dish, New York has its thin foldable crusts, and California has ushered in gourmet-topping creativity. Boston and greater New England, meanwhile, are seemingly without an identity. But if anything, the region has distinguished itself with a heavy entrenchment of native pizza chains, making it more difficult for outsiders to gain access. Papa Gino’s, Bertucci’s and Pizzeria Uno are all based in Massachusetts and have rooted themselves in prime areas throughout the region. Papa John’s, meanwhile, has found it difficult to gain traction in New England while Little Caesars has had the same struggle.
Papa Gino’s has also been able to cash in on the current good fortunes of Boston’s sports teams. Patriots Kicker Adam Vinatieri is the spokesman for Papa Gino’s and D’Angelo just signed Red Sox slugger David Ortiz to a marketing agreement.