With the food service industry projected to reach over $900 billion in 2022, investing in restaurants can offer lucrative returns. However, identifying the best restaurant investment company requires careful evaluation. This article will provide insights on assessing management experience, portfolio diversity, investment strategy, deal terms, and track record when selecting the optimal restaurant investment firm. There are unique risks and complexities to restaurant investments, so partnering with an experienced operator and investor is key to maximizing profits.
Evaluate investment management’s restaurant operations experience
Look for a restaurant investment firm with seasoned professionals that have actually operated successful restaurant businesses themselves. They will understand critical unit economics principles and what drives profitability at individual locations. Having managed real restaurant P&Ls gives them the ability to enhance operations post-acquisition. Strong restaurant operations experience enables the investment firm to drive sales growth and profit expansion by bringing technology, branding, marketing, purchasing power, and operational best practices to the table.
Assess diversity of restaurant portfolio and concepts
Seek a restaurant investment firm that has experience across diverse cuisine types, service models, and brand positioning. Multi-concept operators understand how to attract a wide demographic of guests. They also know how concept tweaks can reposition a brand while retaining historical guests. Having stewardship over varied restaurants with different traffic patterns also smooths cash flows and mitigates risk. A diverse restaurant portfolio indicates the investment firm’s ability to operate and grow in any market environment.
Understand the restaurant investment strategy
The investment firm’s philosophy and strategic approach should align with your objectives. Those focused on stabilization and cash flow may improve four wall profitability rapidly through cost cutting. Growth-oriented firms instead reinvigorate top line sales through branding, innovation, and customer experience investments. Understand whether the firm makes minority investments to fund growth or acquires majority control to implement changes. Ensure the strategy matches your targeted return profile and risk tolerance.
Scrutinize deal terms and fee structures
The highest returns come from partnering with restaurant investment firms offering fair terms and reasonable fees. Seek firms taking minority equity positions to ensure incentives are aligned for the long-term. Require built-in options to increase ownership over time. Rigorously evaluate any management or licensing fees to ensure they provide tangible value to the operating company versus just generating income for the investment firm.
Verify investment track record and exits
The past performance of a restaurant investment firm predicts future success. Request concrete examples of investment returns over time, both pre- and post-fee. Ask for case studies showing actual brand improvements and profit growth at acquired restaurants. Check that the firm has successful experience with realization events through sales and IPOs. A proven record of accretive restaurant investments and profitable exits demonstrates the ability to deliver attractive risk-adjusted returns.
Selecting the right restaurant investment partner requires assessing management experience, portfolio diversity, investment strategy, deal terms, and verifiable returns. An experienced operating team, multi-concept expertise, aligned strategy, fair structures, and real track record together demonstrate the ability maximize restaurant investment upside.