The Connecticut-based private equity giant L Catterton agreed yesterday to buy Del Frisco’s Restaurant Group — a steakhouse chain with 78 restaurants — for $650m in cash, Axios reports.
At first bite, the multimillion-dollar deal — an 18.9% premium over the steak-maker’s closing price as of last Friday — seems like a strange move for a massive private equity company…
But private equity firms are cash-craving carnivores
Luxury meat markets like Del Frisco’s offer private equity companies a mouthwatering combination: Stable revenue and cash.
“Restaurant groups, with their cookie cutter scalability and strong cash-generation, work well for private equity,” investment banker Peter Hemington explained to the Financial Times.
Since slinging sizzling steaks is a proven business model, buying steakhouses makes for low-risk investments that can balance out the riskier pieces of a private equity portfolio.
Del Frisco’s isn’t the only sirloin on the private equity plate
The Boston-based steakhouse chain Smith & Wollensky is owned by the private equity firm Bunker Hill Capital.
Other famous steak chains like Ruth’s Chris Steakhouse have been flipped by private equity firms in the past.