Private equity has expanded its impact on the bar and restaurant industries, investing $94.5 billion between 2014 and 2024, according to PitchBook.
But some of these acquisitions didn’t work the way the restaurant might hope.
“Companies owned by private equity firms are more likely to go bankrupt than those that don’t,” said Brendan Ballou, author of “Plunder: Private Equity Companies’ Plan to Plunder America.” “There are many private equity firms.” Incentives have the potential to adopt short-term digging strategies for restaurants that often cause harm or cause damage in extreme cases.”
In 2024, 21 restaurant and bar chains filed for bankruptcy. According to PitchBook, ten of them were backed by private equity. The two most famous are casual catering giants Red Lobster and TGI Friday.
Baru said traditional strategies for private equity, such as leveraged buyouts and sales leasing, are often blamed. A leveraged buyout refers to a sale in which a company uses borrowed cash to buy a company, but the company must pay off its debt, not the company. If a sales lease is implemented, it usually occurs simultaneously with a leveraged acquisition. This is when a company sells its real estate and then has to rent it back.
“This is the key to the failure of Red Lobster,” said Gretchen Morgenson, senior financial investigative journalist at NBC. “It not only has debts that have to be paid, but now pays the rent that it has to pay for the debt it used to not have to pay. To increase Insulting injuries, new owners of these properties increase rents to market rates.”
Meanwhile, private equity can also inject investments and much-needed cash into the restaurant concept, which can extend the life of the company.
“The goal of private equity is to be able to own businesses, improve businesses and exit businesses,” said Donna Hitscherich, senior lecturer at Columbia Business School and co-director of private equity programs.
Without private equity participation, it is impossible to know what the outcome would be.
“We’re not saying, ‘Well, this is a restaurant. It’s owned by a private equity. How does it do it? It’s the same restaurant and it will be our control group.” “Of course, like in any In the business, some operators are more successful, while others are less successful. ”
