Turnaround Of The Year: Beach-themed restaurants, $4.99 platter get Captain D’s back on track


Firm: Sun Capital Partners Inc

Target: Captain D’s Seafood Restaurant

Hold Period: About three and half years

Investment multiple: 7.9x

Financial adviser: North Point Advisors (representing Sun Capital in sale)

Legal adviser: Kirkland & Ellis (Sun Capital)

Lender: Cerberus Capital Management


  • Made smart hire in CEO Philip Greifeld early on
  • More than doubled EBITDA during hold period, to $25.5 million
  • Added less expensive platter to draw in customers
  • Invested in new equipment, decor; new menu items paid dividends

Over a three-and-a-half-year hold that ended with the December 2013 sale of the business, Sun Capital brought in a new CEO who proved to be a great motivator, introduced $4.99 meals that appealed to cost-sensitive consumers struggling in the aftermath of a recession, and improved the overall operation so that customers enjoyed speedier service, better food and cleaner restaurants.

The overhaul worked—and it didn’t take long. By 2011 the company was recording its first same-store sales increase in eight years, and the company achieved a same-store sales increase of 8.3 percent for all of 2012.

Boca Raton, Florida-based Sun Capital had acquired the business in May 2010 from Sagittarius Brands, then a portfolio company of Charlesbank Capital Partners and Grotech Capital Group. Investment bank Piper Jaffray represented the owners, who were looking to focus more attention on their Del Taco restaurant chain. Captain D’s Seafood Restaurant became a portfolio company of Sun Capital Partners V. The $5 billion fund (originally $6 billion) closed in 2007.

At the time of acquisition, the more than 40-year-old Nashville, Tennessee-based company operated about 520 seafood-themed, quick-service restaurants, or QSRs, across some 26 states in the southern and midwestern United States. About half were company-owned, and the rest franchised, according to M. Steven Liff, senior managing director at Sun Capital and lead partner on the deal.

The company had plenty of strengths. These included a loyal customer base and a highly differentiated focus on seafood in a quick-service market dominated by burger, chicken and taco joints. (Its main competitor is Long John Silver’s.) “This is a strong brand,” Liff said of Captain D’s. “It was back then. It is today.”

But in many respects the chain was struggling. Comparable store sales had been in decline for several years, and it wasn’t hard to see why. The menu quality and consistency weren’t up to snuff, said Liff. Restaurant managers were stuck with outdated equipment and decor. At the same time, the management team had launched an ill-fated effort to push the chain into the fast-casual category. ”But it’s not,” said Liff. “It is what it is. It’s a QSR chain. We had to reconnect the consumer value and price point with the expectations of our customers.”

Key Moves

One of the linchpins of the turnaround was the hiring of Philip Greifeld, former president and CEO of Atlanta-based diner chain Huddle House, as CEO in September 2010. Greifeld subsequently brought in new managers to oversee such areas as operations, marketing, finance, procurement and product development.

Greifeld rallied his regional and district managers to focus on customer satisfaction, believing that “if the guests are not satisfied, they are not coming back,” said Liff. Part of the solution was simple blocking and tackling—setting goals and holding managers and staff accountable for serving meals quickly, improving the quality of the cooking, keeping the stores clean. By the time Sun Capital sold the chain, some 95 percent of customers rated their experience either excellent, very good or good in satisfaction surveys, up from 68 percent at the time the firm bought it, said Liff. The frequency of the chain’s best customers visiting the restaurants grew from 1.6 times per month to 2.4 times per month over the same period.

Among other key improvements Greifeld and his management team did the following:

  • Created a $4.99 value meal that helped reestablish the restaurant as a place customers could get a bargain. Once customers were in the door, managers and wait-staff had the opportunity to upsell them on side dishes and other fare. “It really drove a lot of traffic,” said Liff.
  • Introduced new financial controls, procurement processes and better labor management practices to manage costs, while also investing $20 million over three years in new equipment and decor.
  • Improved the quality of the food and revamped the menu to include more healthy options, such as fire-grilled dishes.
  • Revamped the look of restaurants from a dated nautical theme to a more modern beach motif in approximately 35 restaurants.

Opening new stores was not a big part of the growth plan, although the firm did end up adding about 60 Grandy’s franchises through a 2012 tuck-in acquisition that brought in another $2 million in EBITDA. Last year the company also began expanding the number of Captain D’s franchise locations.

At the time of the acquisition the company was generating EBITDA of $12 million. (Bloomberg News reported 2009 revenue for the company at $235 million.) On exit the company had more than doubled EBITDA, to $25.5 million, for the 12 months ended July 31, 2013.

The firm hasn’t disclosed the size of its original equity investment but, according to Liff, it isn’t unusual for the firm to cut equity checks in the $30 million to $40 million range. Through dividend recaps, the firm recouped all of its original investment by the time it sold the company to Centre Partners.

All in, Sun Capital multiplied its original equity investment by nearly eight times, for a stunning gross IRR of 105.3 percent. 

David Toll is editor-in-charge of Buyouts Magazine.

(Correction: On final reference the last name of M. Steven Liff was misspelled in the original version of this article.)