Hargett Hunter Primes New Brands for Growth
Private equity is getting ever more aggressive in the restaurant industry. So the fact that Hargett Hunter Capital Partners picked up two very small brands, ChopShop and Ruggles Green, isn't a big surprise these days, but the firm is doing a few things different.
Partners Jason Morgan, a former CFO of Zoes, and Jeff Brock, formerly at Morehead Capital (which bought Chopt and Hash House) have been pretty aggressive—even by private equity standards. Between July and October, Hargett Hunter acquired Ruggles Green, a five-unit fast-casual healthy lifestyle brand out of Texas with an emphasis on green operations, and ChopShop, a three-unit healthy lifestyle concept with a focus on smoothies, salads, juice and coffee.
Brock said their deep network helped them find these small brands before they hired a firm to shop the business.
“That allows us to circumvent that normal process; most folks are waiting for a book to cross their desk and they’re in an auction process with a dozen other firms trying to find the same deal to put their money to work,” said Brock. “We’re able to find a couple things that had better unit economics than some of these other brands that had seen large investments from private equity firms.”
The firm also differs from traditional private equity with its capital. Backed by a pair of family offices for anchor capital, they're able to move fast when a deal comes along, but also take their time to get things right.
"By not raising a committed fund at this point in time, we end up not putting undue pressure on ourselves to have to get money to work and go up market to do bigger deals," said Brock, who said the firm is essentially the face and operational experts for those family offices in the restaurant industry. "We represent their access to the industry without them having to reinvent the wheel and take years to build up that institutional knowledge."
Morgan said they've been putting some of the old Zoes band back together to build a strong team at the top.
Hires include COO Kyle Frederick, who grew through the ranks at Zoes for 10 years, opening more than 50 locations for the brand. Drew Gage will serve as the CFO. The former controller comes from On the Border, before the Brinker spinoff, and went to Zoes where he was instrumental in the brand's IPO, according to Morgan. Another IPO heavyweight, Will Evans, is also on board and will work at the home office in Raleigh, N.C.
Trey Stilley, a former investment expert at Earnest and Young is also on board. And finally, Adam Griffith, who managed IT at Smoothie King and Cafe Rio before that, serves as VP of IT.
But Morgan said it wasn't just the Zoes pedigree that made the young staff attractive prospects for the new home office of the two brands.
"It's much more about the energy and spirit and enthusiasm is a core tenant of all these hires even more than Zoes background," said Morgan.
He said having the team support both brands provides a lot of horsepower that a similarly sized operation couldn't afford.
"If you were a founder of a five-unit brand, you would not be able to recruit any of these people. First, you wouldn't know where to find them, and second, they probably wouldn’t take the risk of coming and working for an unknown," said Morgan, who said the growth prospects were exciting for the new team. "They’re all solid high performers and I think if they had anything less to do, they’d be disappointed."
But even with the strong team at the top, the firm is taking its time to get the right systems in place for future growth—another difference from many fund-based private equity models that have to grow fast and immediately.
"Most of the time, when you walk into these businesses it takes a good year to set the foundation of good systems process and people before you can start growing," said Brock. "In my opinion, when you get up to that 15- to 20-X multiple that you see in these brands, they’re starting out at a disadvantage and it’s going to be hard to catch up to get the return that you want to see on those concepts."
With that in mind, there are some key things to be done at each of the brands to get operations ready for growth. ChopShop has a 2,500- to 2,800-square-foot box that will be tweaked in the next three locations. Ruggles Green, on the other hand, looks very different from location to location. The 3,200- to 5,000-square-foot restaurants that already produce a “north of 50% cash-on-cash return,” will get signature style and brand elements to tie the locations together.
Both brands need SG&A support at the top, including better accounting and back office systems, and together the brands will have more leverage with vendors—all of which the new team is already working on in the Dallas and Raleigh offices.
One of the key advantages is not having any debt on the books thus far, something that has the team ready to push forward to a goal of 30 locations in the next five years.
“These are 100% equity deals, no debt on the books, and you’ll see if we can get deals done from an all equity standpoint, that’s the preference,” said Morgan. “That gives you the ability to use debt when you need it and also we put some extra cash on the balance sheet so we can start opening these stores and using operating cash flow instead of using debt to grow the business.”