Case Studies

Borrower

Founded in 1978 and headquartered in Boston, MA, ABP Corporation (Au Bon Pain) is a leading operator and franchisor of branded fast casual café locations. As a highly recognized brand, the company owns and operates over 120 units in New England, New York, Washington D.C., Chicago, Philadelphia, Pittsburgh, and Ohio. Domestic franchisees operate over 60 bakery cafés in 16 states throughout the U.S., while international franchisees operate over 40 units in Thailand, Taiwan, Kuwait, and South Korea.

The Industry

According to the National Restaurant Association, the U.S. restaurant industry achieved its 17th consecutive year of positive sales growth in 2007. In recent years, the industry has benefited from numerous positive trends including: the growing number of dual-income and single-parent households; the consumers’ desire for convenient, quality, and economically-priced meal options; and a steady increase in the average U.S. household disposable income driven in part by an increasingly older population.

Au Bon Pain maintains a unique position in the fast-growing bakery café sector of the fast casual segment of the restaurant industry. This sector is characterized as having a reasonable, average check, fresh food, and a sit-down experience that surpasses typical fast food environments. By 2013, fast casual sales are estimated to grow at a CAGR between 10%-12%, significantly higher than other restaurant segments.

The Challenge

In 2005, ABP’s senior management team partnered with PNC Mezzanine Capital to buy the company from Compass Group, a leading contract foodservice business. CapitalSource provided the senior debt facility to support this transaction. In July 2007, CapitalSource also facilitated a recapitalization to allow management to purchase an even greater equity stake in the company, while Compass retained a small ownership percentage.

Au Bon Pain flourished under the management team’s ownership. They achieved impressive financial results, and while ABP’s management was interested in pursuing a more robust expansion plan, PNC sought a high return on their investment and was interested in a liquidity event. In search of a new partner to finance expansion, ABP went through a limited auction process.

In November 2007, ABP’s new partner, LNK Partners, worked with the existing management team to build on the company’s past success and begin a cautious, but somewhat extensive plan for growth. In a challenging credit market, ABP and LNK needed long-term debt financing and wanted a financial services partner with an efficient, timely process as well as experience in the restaurant sector to help finance the acquisition and fund future growth.

The Solution

Comfortable that CapitalSource could once again deliver a customized financial solution in the midst of the early stages of the credit crunch, ABP and LNK Partners, turned to CapitalSource who delivered a committed senior debt facility consisting of a $30.0 million revolver and a $78.2 million first lien term loan. Mezzanine capital, rollover management equity and new cash equity from LNK comprised the balance of the capital structure.

The leveraged buyout allowed ABP’s management to maintain a significant ownership position in the company while providing increased access to new capital in order to further grow the business.

Despite deteriorating market conditions, CapitalSource ran a formal syndication process and successfully completed a syndication of the senior debt facility. Ten institutions— many of them new to the credit—came into the transaction with commitments ranging between $2.0 million and $19.0 million.

CASE STUDY WRITTEN: 11/08


Header photo credit: ( c ) 2008, The Washington Post. Photograph by Nikki Kahn. Reprinted with Permission.