For Dunkin’s private equity owners, it’s time to make some profits.
When Dunkin’ Brands went public in July, it was a bit of a misnomer. Yes, average coffee drinkers could buy stock in the company to which they pledged their fidelity each morning. But the company was still controlled by three private equity firms — Bain Capital, Carlyle Group and THL Partners — that had acquired Dunkin’ in 2006 for $2.43 billion. They only sold 3.3 million shares via the IPO, leaving them with nearly a 75% stake.
Today, however, the PE firms indicated an interest in loosening their grip a bit. In a regulatory filing, they laid out plans to sell around one-quarter of their position, which would bring their aggregate stake down to just 57%. Still majority-ownership, but clearly a bit first step toward minority status.
Dunkin’ shares are off around 6% today on the news (plus a fall in quarterly profits), despite reporting better-than-expected earnings. But even at a reduced share price, this is looking like a giant win for the PE firms.
As of 3:43pm today, Dunkin’ shares were trading at $27.22 a piece. At that price, the PE firms’ offering would generate just under $600 million. This is on top of the $63 million earned via the IPO, a $500 million dividend recap the firms reaped last year and a remaining stake valued at $1.86 billion. So that’s a total of just over $3 billion billion, or 22% more than what the firms paid for Dunkin’ in 2006 (a deal criticized in some quarters for being too generous).
But it’s important to remember that private equity firms themselves don’t actually pay the full purchase price of an acquisition. Most of it is actually debt that gets paid back by the company. In the case of Dunkin, the PE firms only put in around $1 billion.
So their paper return right now is nearly 3x cash-on-cash, with a hold time of around five years. And, again, that’s based on a share price nearly 6% lower than where Dunkin’ opened trading today.
When I interviewed Dunkin’ CEO Nigel Travis earlier this fall, I asked if the PE firms had articulated a plan for how they planned to walk away. He said:
There is not a concrete plan that I can articulate to you today. My very strong hope is that they stay in for some time because they’ve contributed significantly to building this business and can continue to do so.
It appears the PE firms will continue to own Dunkin’ for the near future, but they clearly are beginning to plan their exit strategy.
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