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Goldman Sachs Buys Applebee's Franchise

Goldman Sachs World Headquarters, New Jersey
Goldman Sachs building in Jersey City, New Jersey. photo/nesstar

INDEPENDENCE, Ohio — Applebee's largest franchisee announced today that private equity firm Goldman Sachs Capital Partners is investing in its franchise. GS Capital Partners bought shares of franchisee Apple American Group LLC from its existing private equity investor Weston Presidio. GS Capital Partners was previously an investor in Apple American from 2001 to 2005. The deal terms were not disclosed.

Brad Gross, who is managing director and was also involved in GS Capital Partners' original investment in Apple American, says: "We are excited to have the opportunity to work with Greg and his team again, as well as with Weston Presidio, to help Apple American continue to execute its strategic plan and enable the next stage of its growth."

What's in it for Apple American? Growth

Founded in 1998, the Apple American franchise now has 270 Applebee's casual dining restaurants in California to Nevada, and Ohio to New Jersey. The company says it is the fastest growing operator in the Applebee network of 2,000 restaurants worldwide. "Apple American has experienced tremendous growth since its founding and we see a number of opportunities for additional expansion," confirms Weston Presidio Partner Sean Honey.

Apple American revenues x $1 million. source:Apple American website

The franchise's founder, chairman and chief executive officer Greg Flynn, adds: "We have benefited from Weston Presidio's involvement and look forward to their ongoing contributions as well as the new insight and support we will receive from GS Capital Partners," said Flynn. He added, "We now have the added resources we will need to continue to grow through a variety of initiatives, including existing restaurant revitalizations, new restaurant development, and potential new acquisitions."

Flynn maintains a significant ownership in the franchise and will continue to lead its operations.

Why are PE Firms investing now in restaurant chains?

John Gordon, principal of Pacific Management Consulting Group, who specializes in restaurant chain analyses and economics, frequently encounters and works with private equity acquisitions in restaurant chains. Gordon says that private equity firms' interests in both franchisor and large franchisee chains have heated up this year for at least three reasons.

PE firms were able to acquire record levels of capital back in the heady days of 2007. But during the Recession, "capital markets seized up," says Gordon. These firms can only sit on their old investment money for so long or they lose it. "PE firms have a four year window that they have to use their capital or they have to give it back," declares the restaurant analyst.

There's another cycle at work as well. PE firms like to turn around their investments, like restaurant franchises, in five year cycles. Gordon elaborates, "PE firms invested into restaurant chains in a big way during the mid-2000s when funding was easy to obtain."

Finally, money is now considerably cheaper than it has been. "LIBOR has dropped markedly since the 2007 and 2008 peak. That means the cost of capital for PE firms is more favorable," observes Gordon. Add that PE firms consider restaurants as good investments early on during economic recovery cycles because of their revenue steadiness. That all combines to create a keen interest in restaurant franchisors and extremely large franchisees.

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