By Jonathan Matsey
Food & Beverage
9/29/2005 – American Securities Capital Partners has agreed to sell Mexican-style chicken restaurant chain El Pollo Loco Inc. to Trimaran Capital Partners. The deal was valued at about $400 million, according to a person familiar with the transaction.
Andrew Heyer, managing partner at Trimaran, said that Bank of America and Merrill Lynch provided debt for the deal, which is expected to close later this year. The deal was shopped by Bank of America and Piper Jaffray, according to Glenn Kaufman, managing director of American Securities.
American Securities purchased El Pollo Loco in December 1999 from Advantica Restaurant Group Inc., which regarded it as a non-core asset, according to Kaufman, who didn’t comment on returns other than to say that it was “tremendously successful”. Heyer said American Securities improved the company’s fundamentals by cutting debt and beefing up management.
Now, geographic expansion is key to the company’s growth, Heyer said. “Basically, we expect a geographic rollout of a highly successful concept,” he said.
El Pollo Loco – Spanish for “the crazy chicken” – serves flame-grilled chicken and Mexican-style chicken products like burritos and tacos. The company operates or franchises 238 restaurants in California, Arizona, Nevada and Texas. Kaufman said that the company has agreements to expand beyond the Southwest into New York, New Jersey, New England, Colorado, Oregon, Illinois, and Washington, D.C.
Heyer said Trimaran will use those agreements to help the company grow, both by opening more company-owned stores and by securing more franchises. “The future growth of company-owned stores will be in California and neighboring states,” he said. Elsewhere, he said, it will be up to the franchisees.
Heyer and Kaufman both think demographic trends are working in El Pollo Loco’s favor. The Hispanic population, which makes up 51% of the company’s clientele, is on the rise, and Americans as a whole are looking for healthier restaurant fare, which Heyer says El Pollo Loco provides. In addition, more people are eating out.
According to its annual report, El Pollo Loco had 2004 revenue of $219 million, up from $206.4 million the year prior. Net income fell to $3.8 million from $7.4 million. In its annual report, the restaurant chain cited corporate governance and disclosure rules as the reason behind the decline in net income.
Based in Irvine, Calif., El Pollo Loco was founded in 1975 in Guasave, Mexico. In 1980, the first U.S. restaurant opened in Los Angeles and three years later, the U.S. operations were purchased by Denny’s, which in turn was acquired by Advantica.
Reach American Securities at 212-476-8000; Trimaran at 212-885-4300.