Irvine-based El Pollo Loco Inc. is said to be on the auction block.
New York-based owner American Securities Capital Partners LLC took bids on the Mexican fast-food chain last week, according to TheDeal.com, an investment banking Web site.
Officials at American Securities couldn’t be reached for comment. Stephen Carley, El Pollo Loco’s chief executive, declined to address “innuendo” in the press.
American Securities bought El Pollo Loco in 1999 from Advantica Restaurant Group for $128 million, including the assumption of $15 million in debt.
In 2002, El Pollo Loco’s Chief Financial Officer Joseph Stein said a public offering could be in the cards for the chain.
A sale is more likely now. TheDeal.com, which estimated El Pollo Loco could fetch $340 million, named private equity firms Apax Partners and Bruckman Rosser, Sherrill & Co. as potential suitors. Both have stakes in other Mexican fast-food chains.
The restaurant industry has seen brisk acquisition activity in recent years.
In June, New York private equity firm Palladium Equity Partners said it plans to buy TB Corp., parent of the Taco Bueno restaurant chain, from Jacobson Partners, also of New York.
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El Pollo Loco in San Clemente: locations average $1.4 million each in yearly sales |
Last summer, Columbus, Ohio-based Bob Evans Farms Inc. bought Tustin-based SWH Corp., which operates the Mimi’s Cafe chain.
“Activity slowed down a few years ago, but it’s back clicking along pretty well,” said Patricia Dailey, editor-in-chief for Restaurants & Institutions magazine in Chicago.
El Pollo Loco posted sales of $54.7 million in the first quarter, up 1.5% versus a year earlier. Its net income fell 44% to $903,000 in the period.
Carley blamed interest payments on El Pollo Loco’s publicly held debt for part of the income decline. He also said rising costs of Sarbanes-Oxley compliance contributed to the falloff.
El Pollo Loco reports financials to the Securities and Exchange Commission because of its debt. It also has to comply with the Sarbanes-Oxley Act of 2002.
Carley called the compliance costs “extraordinary.”
“It’s crushing small- and medium-size businesses,” he said.
But overall, Carley said the company is healthy.
El Pollo Loco’s average sales for company-run restaurants was about $1.5 million last year, slightly above industry averages and up from $1.4 million in 2003, he said.
About 40% of El Pollo Loco’s 321 stores are company-owned, with the others franchised.
The company has been among the top three fastest-growing chicken chains in the country, according to New York-based Nation’s Restaurant News, said editor-at-large Alan Liddle.
The chain added about 50 stores in the past five years. It plans to open 125 eateries in the next five years.
With many of its restaurants in California, El Pollo Loco is looking to places such as Chicago and Washington state for growth.
Hispanics make up about half of the chain’s customers, Carley said. One risk for its expansion plans: It’s targeting areas that don’t have as big a Hispanic population as Southern California.
Carley said Taco Bell laid the groundwork for restaurants like El Pollo Loco in Middle America. And he said El Pollo Loco’s Mexican-style grilled chicken appeals to customers looking for healthier food than fried chicken.
Overall, fast-food sales in the U.S. are expected to grow 4.7% to $134 billion this year, according to the National Restaurant Association.
