Web Exclusive: Houlihan’s Secures an Investment to Grow
The casual-dining chain learns that a track record of success and the backing of a well-funded investor are essential for obtaining a $40 million senior credit facility.
By David Farkas, Senior Editor -- Chain Leader, 12/1/2007
What’s the formula for persuading an investment banker that your company is good for, oh, a $40 mil
lion senior credit facility? Industry veteran Bob Hartnett discovered it after reorganizing Houlihan’s Restaurants after bankruptcy in 2002 and signing several multiunit franchise deals. Today the aging casual-dining brand has a new prototype and new menu. It also boasts an equity-infused balance sheet that’s making growth possible.
Some market research helps.
“The Houlihan’s brand is still bigger than the company,” declares Rod Guinn, senior vice president for Wells Fargo Foothill, who arranged a $40 million debt deal with Houlihan’s Restaurants last spring. He’s referring to a study the chain commissioned that shows customers think the 95-unit system is three or four times as large.
Toss in an industry veteran.
“Look at Bob’s track record over last five years,” Guinn says, referring to CEO Bob Hartnett. Since signing on in late 2001, Hartnett has successfully guided the company through bankruptcy, revamped the menu and decor, and attracted multiunit franchisees. “We took tremendous confidence from that and his team,” Guinn says.
Add a well-funded investor.
Also last spring, Goldner Hawn, a Minneapolis-based private-equity firm, poured nearly $30 million into Houlihan’s, giving it control of 70 percent of the stock; management owns 25 percent.
“Having a financial sponsor willing to put $30 million into the company goes a long ways for a bank group getting to feel comfortable about the company’s future,” Hartnett explains. “I don’t imagine we could have gotten the same kind of terms and bank deal without [Goldner Hawn].”
Bird in the hand.
Capital in hand, your work still isn’t over. Hartnett says getting an equity partner and a debt partner on the same page is critical to survival.
His advice: Get them in the same room to make sure both understand why the company wants to borrow the money and what the company’s business plan calls for over the next three to five years.
“Everything gets documented, of course,” Hartnett explains. “But it’s the relationships that make a difference.”
Should things not go according to plan (usually the case, Hartnett concedes), the equity and debt partners can figure out a new course of action together. “They now have the ability to get in a room and say, ‘What do we do and how do we get there?’” Hartnett explains.
Management’s role? “We are the ones running the business day in and day out,” says Hartnett. “You have to communicate both good news and bad to your partners.”
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