Lake Forest-based Del Taco Holdings Inc. is poised to change its name, be acquired and become a publicly traded company this Tuesday.
The acquisition by Chicago-based Levy Acquisition Corp. and the name change of the combined operations to Del Taco Restaurants Inc. are on the agenda of a June 30 meeting of Levy Acquisition shareholders, according to a recent regulatory filing. A vote is expected.
“That’s when Levy ceases to exist and they formally become Del Taco,” said Eric Gomberg, founder of New York-based hedge fund Dane Capital Management LLC, which has invested in Levy.
The acquisition brings Del Taco additional restaurant experience and plans for expansion—not to mention money.
Restaurateur Lawrence Levy founded Levy Acquisition as a “blank-check” company to buy a restaurant operator, raising $150 million in an October 2013 initial public offering.
Levy Acquisition said March 12 that it would buy Del Taco, and 11 days later a Lawrence Levy-led investor group bought a 46% stake for $120 million.
The companies have worked since
then to close the deal (see sidebar for timeline).
The operations of the Del Taco chain are expected to remain based in Lake Forest.
Experience
Lawrence Levy and his sons, Ari Levy and Steve Florsheim, joined Del Taco’s board in conjunction with the March cash infusion, and Lawrence Levy became chairman of the chain.
“Levy is a longtime operator and has access to capital,” said John Gordon, principal of San Diego-based restaurant consultant Pacific Management Consulting Group LLC.
He said the new team’s track record in building restaurant companies is a boon to Del Taco.
Levy cofounded Levy Restaurants in 1978 and sold it in two stages, in 2000 and 2006, to U.K.-based Compass Group for a combined $377 million, according to Crain’s Chicago Business.
Levy Restaurants operates concessions at stadiums and arenas, including Wrigley Field. It has about 25,000 employees and $1.2 billion in revenue, Crain’s said.
Levy and his sons launched Levy Family Partners LLC in 2003. Its more than 200 investments include Pasadena-based Blaze Pizza LLC and Pollo Campero, a Guatemala-based chain similar to Costa Mesa-based El Pollo Loco Holdings Inc., whose U.S. headquarters are in Dallas.
The move to publicly traded status also bodes well for Del Taco.
“It should garner attention from Wall Street, [with] additional research coverage and institutional investor interest,” Dane Capital’s Gomberg said.
Shares have traded steadily since March at about $15 for a premerger market value of $300 million. A May 4 article in Barron’s suggested a $19 price target, which sets a market value of about $400 million on the new Del Taco.
Expansion
Del Taco has 547 restaurants in 16 states.
Levy and Del Taco have reported that an average unit produces about $1.2 million in annual sales.
“$1.5 million is … where good things start to happen,” Gordon said, including “better leveraging of fixed costs.”
He also said Del Taco could sell company-owned units to franchisees—60% of the 547 restaurants are company-owned—as other publicly traded restaurant companies have done recently.
The balance sheet benefits, stock impact, and motivated new franchisees could spur growth, Gordon said.
A first step is talking with “large franchisee groups among existing owners” about taking on more stores, he said.
Observers said options include tapping Lawrence Levy’s relationships with sports arenas, stadiums and other venues that he formed while building and selling Levy Restaurants.
“Levy’s relationships in the restaurant industry are extensive,” Gomberg said.
“Post-closing, they will be strongly positioned,” he said. “The closing of the deal … will be like a ‘coming-out’ party.”
