Creating Standalone Business Infrastructures
Southern California Pizza Company (“SoCal Pizza”) is the largest Pizza Hut franchisee in California and the third largest in the United States. At the time of our investment, SoCal Pizza operated 221 Pizza Huts in greater Los Angeles.
Background
As part of a refranchising program to reduce the number of company-owned units, Pizza Hut, a subsidiary of Yum! Brands, decided to divest 123 units in the Los Angeles market. While store-level personnel were included with the sale, no executive management was included. To qualify as a bidder, Pizza Hut required potential buyers to have proven QSR experience, an approved senior management team, and an in-place IT infrastructure capable of handling one of the largest franchisees in its system.
Recognizing an opportunity to acquire units with a strong brand in a tier-one market, we recruited as CEO a seasoned restaurant executive who had a long record of success operating and optimizing QSR units for Pizza Hut and other franchise systems. Together with our new CEO partner, we set out to build the necessary infrastructure for the platform that would support future growth. After a complex and lengthy sale process, Pizza Hut selected Sentinel as the winning bidder. At closing, we had already executed the following initiatives to prepare SoCal Pizza to operate as a standalone business:
- Recruited an entirely new senior executive team
- Built a full support team to manage the finance, marketing, and human resources functions that Pizza Hut had previously provided
- Implemented a brand new IT infrastructure
- Established standalone insurance, benefits, and other necessary programs
Opportunity
- To acquire stable but underperforming QSR units of a prominent brand in a growing category
- To invest in a solid business that could serve as a platform for future acquisitions
- To partner with an experienced and highly motivated management team
Accomplishments
Smooth Transition to a Fully Standalone Business: Because we had already recruited before the closing a new management team and built a complete infrastructure, SoCal Pizza was able to fully function from day one without business or customer disruption.
Secured Cost Improvements: SoCal Pizza’s new management team was able to achieve significant and permanent cost improvements within several months of closing.
Acquired Additional Units to Build Scale: After the initial closing, Sentinel learned that Pizza Hut was considering divesting additional contiguous Pizza Hut units. Sentinel approached Pizza Hut, and in August 2009, SoCal Pizza completed the acquisition of an additional 98 units in greater Los Angeles.
Outcome
Following a successful transition to a standalone business and a smooth integration of the large add-on acquisition, SoCal Pizza’s revenue and profitability increased significantly. In 2012, having held the investment for more than four years and having achieved our investment objectives, Sentinel sold SoCal Pizza to another private equity firm in a management buyout transaction.
Case studies have been selected for illustrative purposes for management teams of midmarket companies considering a partnership with Sentinel and should not be considered an offer or solicitation of services or an actual or implied endorsement of Sentinel or any security, investment, or portfolio company. The portfolio companies highlighted are not representative of all current and prior investments of Sentinel. A list and description of investments since Sentinel’s inception is available on this website.