Buyout Firms Want Dunkin’ Donuts for Themselves
By George Anderson
A group of buyout firms, including Bain Capital, Thomas H. Lee Partners, and The Carlyle Group, have been in talks to purchased Dunkin’ Donuts from its French parent, Pernod
Ricard SA.
Pernod, which officially takes over ownership of Dunkin’ Donuts as well as Baskin-Robbins and Togo’s today from Allied Domecq, previously announced its intention to sell the
foodservice businesses.
According to The Boston Globe, Pernod has hired JPMorgan Chase & Co. to help find buyers for the Dunkin’ brands. An auction for the business is planned for September.
Both Bain Capital (Domino’s Pizza and Burger King) and The Carlyle Group (Dr Pepper/Seven up Bottling Group Inc.) have investments in the food sector.
Dennis Lombardi, executive vice president of food service strategies for the design development firm WD Partners said, “This is not about Dunkin’ Donuts going away or Baskin-Robbins
going away. This is about how do you make the brands stronger.”
Dunkin’s Donuts is the strongest of the three businesses with more than 6,000 stores worldwide. Sales for the unit were up 12 percent last year. Baskin-Robbin’s sales were up
about two percent while Togo’s sales were down slightly for the same period.
Moderator’s Comment: What do you make of the seemingly increasing number of deals involving buyout firms to takeover retail and foodservice businesses?
What does the ownership of these businesses by private equity firms mean for the acquired companies?
– George Anderson – Moderator
I am uncomfortably certain that many of these deals are powered by consulting firm analysis showing bushels of “low hanging fruit.” Relatively fast (12 month horizon), easily implemented, low capital operating improvements which will significantly improve operating performance ratios. Having participated in many of these presentations, they are all eminently logical, backed by “best practices,” and almost invariably, much more difficult to deliver than promised.
Retail, be it merchandise or QSR, remains an industry which looks “easy” and “not rocket science” to intelligent outside observers. Yet the retail roadway is littered with the dead bodies of many concepts, companies and people who have thought this way. Investment firms are staffed with incredibly bright people. Many of whom feel, and perhaps appropriately, that there is very little they can’t understand about business.
The other factor to consider is the size of the retailer being turned around. Even if the “low hanging fruit” can be picked, packed and eaten, there remains sustainability. The larger the retailer, the more scrutiny is given to the sustainability of the measures taken.
Cain’t remember who-all originally said it, but the line “follow the money” is hammering a rhythm behind this discussion. It’s no longer about food or eating or quality, it’s all about profits. Nothing new there, I suppose, but it still hurts to see it so publicly acknowledged and widespread. I remember when the first Dunkin’ Donuts opened near where I was growing up and although it’s many (many) years since I’ve had a doughnut, the old nostalgia still kicks in when I hear stories like this one. Shame.
The early retail entrepreneurs relentlessly sought ways to serve the consumer better than their competitors’ could. That competition was created by a fierce pride that tolerated feeding off of low profits. That was tolerable due to single ownership until financial acumen arose from the roots.
The new owners of today are just as relentless only their service is to increase cash flow and profits. Both paradigms have been successful in their time, but one should ponder what kind of involved relationship with the source of success, the customer, will tomorrow demand? Will the “low hanging” fruit exist forever for the orchard masters managing from the verandah?
Buffet bought DQ, and its strong Brand equity, for a long term
period. The buyout groups tend to NOT understand the Brand
strength, or potential of the acquisition.
Dunkin’ Donuts is a business and Brand that can bring long
term, as well as short term, profit. Buyout groups will
start stripping and downsizing the business instead of
looking to properly consumer-market and, profitably, expand
it.
Whoever buys it and nurtures DD with consumer marketing will
profit!!
This one seems obvious to me. The foodservice business continues to grow as people eat on the run more and more. Many of these companies (i.e. Dunkin’ Donuts) have equity, good management and growth and expansion opportunities.
The management of Dunkin’ Donuts could assume an expanded role in this proposed acquisition and continue their sales and profit growth. This acquisition can work for all concerned.
Dunkin’ is a great candidate for a buyout firm since it is seen as a steady cash flow generator with low risk. This makes its earnings leverage-able with banks. Capital needed to grow the business is minimized, since the franchisees put up the money for the locations. Labor issues are the franchisees’ headache, not the franchisor.
The buyout firm can use the brand or the procedures/systems infrastructure to create greater growth. It can use brand and product extensions for Dunkin’ and/or start new franchise concepts using the Dunkin’ organization and its procedures and systems.
As the quantum-leap growth starts to occur, the company can go public and the buyout firms will sell some equity at a much higher earnings multiple than the original price of the business. They will achieve an excellent return on their investment, since it will be leveraged with bank debt.
Corporate spin-offs are often seen as superior investments since they get fresh management focus by a new, highly-skilled owners.