Victory Park Closes Fund II, Snaps Up Pizza Chain

The deep dish on Victory Park Capital, which recently outbid 13 other investors to buy Chicago’s famed Giordano’s pizza chain, is that the firm also just wrapped up fundraising on its VPC Fund II LP, bringing in $480 million in fresh commitments. That’s $80 million more than the firm’s initially sought when it started raising money in mid-2010.

And Victory Park is not taking a breather. The firm is also set to launch a third fund, one backed by the Small Business Administration, during the next several months, according to Matthew Ray, a Victory Park partner and co-founder, in a conversation with Buyouts. That fund will start investing about $70 million and focus the money on direct loans to smaller companies.

The Chicago-based private equity firm, which was founded in 2007, specializes in turning around distressed small and middle-market companies. The firm typically invests between $10 million and $50 million in each company, and has bet on such well known enterprises as Jamba Juice and Gulfstream International Airlines, which, like Giordano’s, it bought out of bankruptcy.

Fund II is a hybrid private equity and distressed debt fund. The firm says its investors are endowments, foundations and other “top-tier” investors.

Ray said one of the things that sets Victory Park apart from most private equity firms is that it concentrates on equity control and debt financing for distressed small and middle market companies, an area he says is relatively underserved. “We see a target-rich environment, whereas people who play upstream haven’t seen as many strong opportunities,” he said.

In many ways, Giordano’s, which a Victory Park-led group bought with a winning bid of $61.6 million, is typical of the investments the firm seeks. Giordano’s fell on hard times after its former owner, John Apostolou, used the pizza chain that his family controlled since 1988 as collateral for a real estate investment near Disney World that wend bad.

Giordano’s new owner now directly owns or co-owns 10 restaurant locations and services 35 franchisees in Chicago and Florida. Apart from taking on Apostolou’s two sons, Basil and George, as junior partners, the firm says it will try to expand the Giordano’s brand to new locations and new products, while seeking to control costs.

“The pizza business is a good business,” Ray said. “The margins are pretty good. And while there is a lot of competition, there’s brand value in Giordano’s. It’s pretty much accepted as Chicago’s best deep dish pizza.”

When asked about whether he saw more opportunity in growing the Giordano’s brand or cutting costs, Ray said Victory Park would be looking at both, but as an operationally intensive firm, they were most interested in looking at all the ways they can leverage the brand’s assets, from introducing a frozen pizza line to offering craft beers at its restaurants.

Nevertheless, much of the interest in the firm stemmed from real estate firms, who were bidding on the chain to win ownership of its prized main location at 730-40 Rush St., right next to Chicago’s Peninsula Hotel.

As for VPC Fund II, it is actually Victory Park’s first true private equity fund in that Fund I is registered as a hedge fund and is technically an open-ended vehicle, a factor that prevents the firm from discussing it more broadly with reporters.