Corporate Carveouts
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 exit, SoCal Pizza operated 221 Pizza Huts in the greater Los Angeles metro area.
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 continued with Pizza Hut after the sale, no executive management was included. 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 with a long record of success operating and optimizing QSR units for Pizza Hut and other franchise systems. Together with the new CEO, we set out to build the necessary infrastructure for the platform to 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 enable SoCal Pizza to operate successfully post-carveout:
- Recruited an entire senior executive team
- Rebuilt a full support team to manage the finance, marketing, and human resources functions
- Implemented new IT infrastructure
- Established new 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 consolidation platform
- To partner with an experienced and highly motivated management team
Accomplishments
Smooth Transition to a Fully Standalone Business: Because we had recruited a new management team and built a complete infrastructure prior to closing, SoCal Pizza was able to fully function from day one with no disruptions to its business or customers.
Secured Cost Improvements: SoCal Pizza’s new management team achieved significant and permanent store-level cost improvements within several months of closing.
Acquired Additional Units to Build Scale: Sentinel approached Pizza Hut when we learned that Pizza Hut was considering divesting more units in the greater Los Angeles market. Based on the credibility we established in building the infrastructure for SoCal Pizza to stand alone and the early attractive results we generated, Pizza Hut agreed to sell us the 98 stores, which SoCal Pizza acquired in 2009.
Outcome
Following the successful carveout from a major corporation, a seamless transition to a standalone business, and a subsequent smooth integration of the 98-unit 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.