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Fingered for growth
Sticky Fingers partners with private equity firm
By Dan McCue
Staff Writer
The founders of the Sticky Fingers chain of barbecue restaurants have sold an undisclosed interest in the business to a Charlottesville, Va.-based private equity firm to finance an expansion that could take the company nationwide.
Financial terms of the deal also were not disclosed.
Chad Walldorf, who founded the company with Todd Eischeid and Jeff Goldstein in March 1992, said the decision to reach out to Quad-C Management Inc. came after years of receiving requests from individuals interested in opening Sticky Fingers franchises.
The chain currently owns and operates 17 Sticky Fingers restaurants in the Carolinas, Tennessee, Georgia and Florida.
“Honestly, the number of requests that we receive via e-mail and telephone has (become) overwhelming,” Walldorf said.
“At the same time, we realized that the interest in barbecue has reached a point nationally where if we didn’t act now, someone else would move to fill the niche. Once we made the decision to go forward on this, we knew we needed to bring in some folks with experience in growing brands and expanding business enterprises.”
Thad Jones, principal of Quad-C Management, said his firm was approached by an advisor to the Sticky Fingers partners and was immediately intrigued by the possibilities.
“Sticky Fingers has all the elements we look for in an investment,” Jones said. “It’s got good management, good growth potential and the potential for an attractive return on investment.”
He added that despite Quad-C’s involvement, it will be business as usual at Sticky Fingers.
“The company is going to continue to have the same management and the same employees,” Jones said. “We’re just trying to help the concept reach its full potential.”
Founded in 1989, Quad-C Management invests in companies in a number of business sectors including manufacturing, retail, health care and distribution. To date it has completed more than 75 deals, with typical investments ranging from $25 million to $100 million.
The firm’s Web site said it currently has approximately $2 billion in committed capital.
Quad-C Management’s diverse portfolio also lists a number of restaurant chains, such as Huddle House Inc., Red Robin Gourmet and Caribbean Restaurants Inc., which includes Burger King franchises in Puerto Rico and the U.S. Virgin Islands.
In each of these restaurant-related situations, the firm has followed a different strategy for securing a satisfactory return for its investors, Jones said.
In the case of Red Robin, a full-service, casual dining restaurant chain specializing in “gourmet” hamburgers, the company ultimately went public. Today the chain, which includes 122 company-owned restaurants and 109 franchised eateries, is publicly traded on NASDAQ as RRGB. The stock reached more than $50 a share in September 2006.
When Quad-C Management acquired Caribbean Restaurants Inc. in 1991, the chain operated 86 restaurants. About five years later, after improvements in operating margins and a growth in the store base to 109 restaurants, the chain was sold to another private equity firm, American Securities Capital Partners LLC, for an undisclosed amount.
At Huddle House, a franchiser of 24-hour family restaurants located primarily in the Southeast, Quad-C Management structured a recapitalization in January 2001 that allowed its investors to realize what the firm’s Web site characterized as “a significant gain on their investment.”
John E. Clarkin, director of the College of Charleston’s Tate Center for Entrepreneurship, said such a diversity of strategies is typical for a large equity firm.
“Remember, companies that are being invested in are dynamic assets, and once it gets involved, the goal of the investment firm is to position that asset to realize the best return on investment,” Clarkin said.
“If the market environment is good, as it has been lately, launching an initial public offering might be an option. If, down the road, market conditions aren’t as favorable, they might instead look for a synergistic buyer.”
As an example, Clarkin pointed to McDonald’s acquisition of the ToGo’s sandwich chain a few years ago.
“Basically, McDonald’s position was, ‘We’re not in that segment of dining and we can leverage our supply network to reduce their costs and make them more profitable, while extending our profile into their locations,’” he said.
A significant factor in what may be in store for Sticky Fingers’ future is what kind of “time horizon” the investment firm has, Clarkin said.
“It sounds, from their track record with other restaurant chains, that they like to get in, expand the brand and get out relatively quickly,” he said. “That makes me think we might see another venture firm become involved with Sticky Fingers down the road, because synergistic buyers take more time to find.
“On the other hand, even if Sticky Fingers eventually does go public, that doesn’t mean it’ll be a publicly traded company forever. After all, Quiznos Subs went public, and then the owners bought the stock back, taking it private again.”
Jones acknowledged that at some point the desire of Quad-C Management’s investors to see a return on their investment in Sticky Fingers will require the firm to make a decision about whether to sell or go public.
“But right now, there is no timetable for such a decision,” he said.
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.
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