Hal Rosser talks about his new firm, and why it’s always a good time to buy restaurants
Earlier this month, Hal Rosser announced his departure from Bruckmann, Rosser, Sherrill & Co., a New York-based private equity firm that he had co-founded in 1995 with two other veterans of Citicorp Venture Capital. Only sort of tongue-in-cheek, I wrote that Rosser’s departure was another cautionary tale against putting your own name on the door.
Well, it seems that Hal didn’t take my advice. Today he announced a new firm called Rosser Capital Partners, which will focus on investments in the restaurant sector. He also took some time to discuss the new firm, why he left BRS and why now is a good time to buy restaurant companies:
Fortune: Why did you choose to leave BRS?
Rosser: The biggest reason is that I wanted to do my own thing. It’s kind of like when I wanted to leave Citicorp, but now am just taking it one step further. Specifically, it has to do with specialization. I wanted to do a fund primarily focused on restaurants, retail and multi-unit consumer companies. It wasn’t an easy decision, obviously, but I know those guys at BRS will do fine. I still have a big capital commitment to their third fund, and we might even do deals with them from time to time. Or compete.
I’ve been together with Bruce [Bruckmann] and Steve [Sherrill] since the late 1980s, and they’ve been great partners and are good friends. I’ve learned a lot from them, and there is no antagonism related to my leaving.
There also is one other point: We left at a point in time when we had mostly done as much with our BRS restaurant portfolio companies as we could. We got Bravo Brio Restaurant Group (BBRG) public, Ruth’s (RUTH) was already public and we sold Logan’s Roadhouse. There’s really only one deal without liquidity yet — Il Fornaio Corner Bakery Cafe — and obviously we have a close relationship with management there and will offer any assistance that we can.
It was important to us that we didn’t leave the LPs in BRS high and dry.
It almost sounds like you were planning this move for a while, managing down your portfolio.
Well, I’ve had this dream for a long time, but actually formulating the plan and working it through was something we didn’t concentrate on until the last few months of 2010. That said, we obviously weren’t going to do a new deal last December.
What is so attractive about today’s restaurant sector that it’s worth forming a whole firm around?
You may not like this answer, but I think it’s always a good time to invest in this sector. I think we’ve done 16 restaurant deals over the last 20 years — 13 platform companies and three add-ons — and we’ve done them in all economic cycles. For example, we did McCormick & Schmick’s just before September 11. There always are a lot of people wanting a lot of food.
I’ve probably looked at over 150 restaurant deals over the past five or six years, and it’s all a matter of picking out the cream of the crop. You need to find the ones that are scalable, that are well managed and that have economic models that can work. You also need to believe that the concept is one in which we can add value from a strategic and operational standpoint. And, obviously, the final decision comes down to price.
In the last couple of years, we were able to exit maybe two of the best restaurant companies in the industry, despite probably the worst economy since the Great Depression. And there is lots of activity right now, including from a lot of strategic players looking both to buy and divest. Our pipeline is always active.
So, for you, it’s more about one-off transactions than seeking out hidden gems in a particular niche?
Well, the place where we’ve focused most of our attention has been the casual quick-serve area. We’ve played in the fine-dining segment, but we think casual quick-serve, bakery-cafe and casual segments are our best spots.
Have you begun raising your first Rosser Capital fund?
No, we’re just now beginning to talk to folks. Obviously we didn’t feel we could do that while still at BRS. We’ll be formulating our capital plans over the next quarter, but we’ll be immediately active in the market — relying on existing contacts and funding sources to the extent we see stuff right now.
If you look at the last four or five deals we’ve done, all of them had equity capital requirements in the $50 million to $75 million range. We partnered with Castle Harlan on one, we partnered with our largest LP on one and did some other partnerships too. Based on that, if you need 30-40% equity to do deals today, and want seven or eight deals in a fund, you can figure out our capital requirements. In terms of time, I don’t know how long it will take us to raise.
Are you planning to add staff?
One nice thing about a new firm is that we don’t have an existing portfolio to manage, even though I’m still on the board of Brio Bravo, so our existing team has a lot of capacity to do deals. But when we learn how much money we’re able to raise, we’ll increase staff as scale demands. Our primary focus is on putting together an operating partner network, which we’ve already begun and believe will be full of all-stars.
Finally, why put your name back on the door?
Coming up with a name is always a weird thing to do. The primary factor, for us, was that we wanted to have a transfer of recognition of what we’ve already done in the space. More about precedents than ego.