On The Money: Shop Talk with Christopher Thomas

Three seasoned restaurant executives are yearning to buy a chain.

By David Farkas, Senior Editor -- Chain Leader, 3/1/2007

Orlando, Fla.-based Restaurant Acquisition Partners, a "blank check" company, has just 24 months to buy a restaurant chain—or else liquidate and return $20 million to shareholders. Which explains why RAP President Christopher Thomas, former CEO and president of Sizzler USA, whose partners include former Chart House CEO John Creed and former Long John Silver’s CEO Clyde E. Culp III, is scouring the market for the ideal buy.

What exactly is a blank check company?

It’s a publicly traded buyout company—a public-equity fund that allows its management to raise capital in the public marketplace for the purpose of making an acquisition. I believe we’re the first blank check company run by restaurant executives exclusively to make an acquisition in the restaurant industry.

How much acquisition capital did you raise?

We raised $20 million, selling shares for $6 per unit. Each unit was one share of common stock and two warrants with an exercise price of $4.50.

Private-equity funds operate without many restrictions. What about public-equity funds?

Key restrictions include placing a substantial amount of the offering’s net proceeds in a trust for the benefit of the public investors. The company also has 24 months to complete an acquisition or it’s required to liquidate itself and return the money held in the trust, plus interest. The acquisition must have a fair market value of at least 80 percent of the offering.

Do you have a chain in mind you want to buy?

Not just yet. We are not in hot pursuit of anything, but we are looking at a lot of things with a sense of urgency to get things done.

What do the three of you like, concept-wise?

We like casual dining and quick casual, with quick-casual chains being the most desirable. It’s fast-growing, and it fits today’s lifestyle—bolder flavors, fresher food, healthier options. There are also more real-estate options available to it and a more modest investment.

Does the Wendy’s/Baja Fresh debacle serve as a warning to buyers of quick-casual chains?

Baja Fresh, like others before it, once again reminded us of the difficulties of making acquisitions from a return-on-investment standpoint. Overpaying is often the most difficult to overcome.

Is there a level of EBITDA you won’t go below?

It’s got to be $4 million and up.

How many potential deals are you seeing?

Several per week, usually from industry equity funds and investment bankers. Since we’ve announced our partnership, I am getting calls from chains I’ve never heard of.

What’s your biggest selling point?

An important point of differentiation for us is our understanding of the business. We can take a look at concepts in multiple segments of the industry and understand growth potential. For example, say a chain has only built freestanders because management can only visualize their restaurants in front of a Wal-Mart. We might recognize that an endcap or other site options are possible.