2011 Outlook for the U.S. Restaurant Industry
NEW YORK--(BUSINESS WIRE)--Gearing up for a potentially strong year of Mergers & Acquisitions (M&A) activity in the restaurant sector, private equity firms are expected to draw from the lessons they learned during the Great Recession, including to be careful with leverage and that franchising is not a guarantee of growth. These are just a few of the insights offered by Bob Bielinski, head of theRestaurant Industry Practice within Corporate Finance at CIT Group Inc. (NYSE: CIT), a leading provider of financing to small businesses and middle market companies, in “Private Equity and the U.S. Restaurant Industry.”
The interview is part of the latest installment of CIT’s award-winning “5 Minute Capital” (www.5minutecapital.com) podcast series, featuring senior CIT executive commentary on current market conditions and industry trends.
Coming off a strong year of M&A activity in 2010, Bielinski says that despite a slow start, activity is expected to pick-up this year, “2011 started off a little bit slow, but there is a significant amount of money sitting on the sidelines right now and I would expect 2011 to be a good year for M&A. Strong businesses are going to attract a lot of attention from these private equity firms.”
A strong brand or the potential for operational improvements are what draw the most interest from the private equity community, says Bielinski. “I would say the brands are very important and the private equity sector gets very excited about potential growth brands. You always have someone looking at management and saying, ’I could do a better job.’ In those examples, private equity firms may get involved.”
When it comes to lessons learned by private equity investors in the restaurant industry during the recession, Bielinski says the first is to be careful with leverage. “At the peak, restaurant companies were being offered more debt than they probably should have taken. When you run a business that is fundamentally a fixed cost business and sales drop, then profits are going to drop faster. So a business that is highly leveraged can become over-leveraged awfully fast and that’s trouble because then you start making decisions that aren’t good for the business… that the consumer can actually see.”
Another lesson was that franchising is not a guarantee of growth. According to Bielinski, “Private equity firms love franchisors because franchisees fund the growth. But, if you were a chain that was reliant solely on franchisees to fund your growth, development may have come to a complete halt during the recession because there was a credit crunch and these franchisees had a tough time finding the capital they needed to grow their stores.”
Individuals interested in listening to Mr. Bielinski’s first podcast, “2011 Outlook for the U.S. Restaurant Industry” can download it at“5 Minute Capital” (www.5minutecapital.com).
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Founded in 1908, CIT (NYSE: CIT) is a bank holding company with more than $35 billion in finance and leasing assets. It provides financing and leasing capital to its more than one million small business and middle market clients and their customers across more than 30 industries. CIT maintains leadership positions in small business and middle market lending, factoring, retail finance, aerospace, equipment and rail leasing, and global vendor finance. www.cit.com.