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Gala Capital Serves Up Dunn Brothers Coffee

PE Firm buys 59-unit chain

Costa Mesa-based Gala Capital Partners LLC, a private equity firm that focuses on franchised restaurant chains, has added a jolt to its portfolio with its latest buy.
The firm in July purchased 35-year-old Dunn Brothers Coffee, which was founded in St. Paul, Minn., in 1987.

The coffee chain currently has 59 franchised locations across seven states, largely in the Midwest. Minnesota is its largest market with 36 locations.

Details of the deal were undisclosed. It’s the first beverage-focused restaurant chain added to the portfolio of Gala Capital, which also invests in software businesses.

“We’ve been pursuing and researching coffee franchises for the past five years,” founder and Managing Partner Anand Gala told the Business Journal.
He calls Dunn Brothers “the best-kept secret in the coffee segment.”

Mooyah, Famous Dave’s

Other brands in the private equity firm’s portfolio include Plano, Texas-based Mooyah Burgers, where Gala is chairman, CiCi’s Pizza of Coppell, Texas and Hopkins, Minn.-based Famous Dave’s BBQ (Nasdaq: BBQ), where Gala served as a director until last year.

Gala Capital typically invests in restaurant businesses with over 50 units.
An affiliate of Gala Capital is also one of the larger rep­orted franchise groups for Famous Dave’s, which counts nearly 200 locations and whose parent company sports a nearly $190 million valuation.

Past Gala Capital investments include Del Taco and Jack in the Box franchises.

Expansion Plans

Dunn Brothers is best known for its coffee, which each store roasts daily in small batches. It also offers food such as sandwiches, wraps and pizza, in addition to selling coffee by the bulk. It calls chains like Panera, Dunkin’ Donuts and Starbucks its main competitors.

Most of its locations—which typically run between 1,600 and 1,900 square feet, and usually have drive-thrus—are owned by local community members, officials note.

“We’re interested in businesses that are a part of the life of the American consumer,” Gala said.

Franchises are Gala Capital’s specialty and acceleration is the goal at Dunn Brothers, which had slimmed down its size in recent years; industry reports said it had nearly 80 locations pre-pandemic.

According to the company’s website, the cost of ownership of a Dunn Brothers Coffee shop ranges between $421,020 and $700,932. “This includes construction, equipment, other startup costs, and the initial license fee of $37,500,” it said.

Gala became chairman of the coffee store chain following the acquisition.

Franchise Family

“I have an affinity for the franchise model,” Gala said. “It’s a terrific way to grow the business and create opportunities.”

Gala started the private equity firm in 2015, but he has been in the franchising business since childhood; his family was a franchisee of Jack in the Box restaurants.

His mother, Rajul Gala, was one of the earliest franchisees for the fast-food restaurant chain, acquiring a first Santa Monica store in 1982. The family later had 10 stores in the Los Angeles area.

The younger Gala later became a franchisee on his own at 25. He began with Del Taco locations in Arizona and Applebee’s spots in California, and later Famous Dave’s. He returned to take over his parent’s franchises when their health took priority.

Eventually, Gala’s parents retired and sold their restaurants, but Gala wanted to take his franchise experience further. He sold over 30 of his restaurants, except for Famous Dave’s, and became a franchiser instead.

Proceeds from his sales helped Gala create an investment firm focused on developing younger and smaller franchise-focused businesses. Maintaining and growing its dining category first, the firm later delved into real estate development and branched out into the technology sector.

Gala Capital has now invested in 18 companies total, with 14 currently active. Six are restaurants which the firm outright owns or has a minority stake in.

Other recent investments include Dallas-based Dillas Quesadillas fast-casual concept, and foodservice software firm Cut & Dry in San Francisco.

“We tend to be very active in the businesses we get involved with,” Gala said when asked about the geography of the firm’s portfolio. “We’re staying in front of and engaging with our management team at each of our businesses.”

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