The restaurant industry has been left reeling because of the coronavirus pandemic but Mercato Partners sees a lot of opportunity in a sector that has had to adapt because of the disruption.
Mercato Partners said on June 4 that it’s closed its inaugural food and beverage fund, Savory Fund I, on $90 million.
Mercato managing director Greg Warnock teamed up with Andrew Smith, CEO of Four Food Group, to invest out of the fund. It will provide capital to restaurants offering different ways to provide services “with a team of experienced industry professionals to fuel growth and operations,” according to a press release.
“The restaurant industry carries an undeserved reputation among certain investors for business risk and razor-thin margins, giving rise to market inefficiency and opportunity,” Warnock said in the press release.
According to a May 2019 report from Family Office Insights, the Savory fund set a targeted return of 3x invested capital and 25 percent IRR. It’s unclear how long fundraising for the Savory fund took place.
Mercato Partners did not respond to a request for comment.
Government-mandated shutdowns of businesses to help control the spread of the virus has hit the restaurant industry hard. More than 5.5 million jobs were lost in the food and beverage sector in April, according to the Bureau of Labor Statistics.
Restaurants across the country that remained open relied heavily on delivery and takeout services, a strategy that Smith said is attractive for Savory’s inaugural fund.
“We want brands that have innovated through the crisis and prevailed on many fronts,” Smith told Buyouts. “Mainly the pivots required to get technology sound and online/order enabled, setup with all third-party delivery providers, updated their packaging program, curbside process and/or increased their speed and accuracy through their drive-thrus.”
Savory Fund already has three brands under its portfolio: Mo’Bettahs, R&R BBQ and Swig. It plans to invest in between five to seven other restaurants, Smith said.
The fund will make initial investments between $3 million to $10 million and provide $5 million to $10 million for growth capital.
“The money is only one-third [of] the equation,” Smith said. “These resources include expertise in real estate selection and negotiation, development and construction of each restaurant location, project and event management, talent recruiting, leadership training and development, supply chain/procurement, human resources, accounting, strategic financial planning, facilities management, sales and marketing, and more.”
Founded in 2007 by Warnock, Mercato Partners also invests in the branded consumer and technology industries. The company has three other funds dedicated to the secondaries market, companies in their growth stage and technology.
Action Item: Check out information on Mercato’s Savory Fund here.