Lower-middle-market buyout firm Mainsail Partners has bought Togo's Eateries, the sandwich chain with a strong California following, from the private equity-backed Dunkin' Brands Inc., which is putting its full efforts behind its Dunkin' Donuts and Baskin Robbins stores.
The deal closed Friday. Meanwhile, Mainsail, of San Francisco, was putting the finishing touches on its $100 million second fund, Mainsail Partners II LP, which held a final close Monday, according to Jason Payne, a managing partner at the firm.
Terms of the acquisition were not disclosed. Mainsail generally invests in companies with annual earnings before interest, taxes, depreciation and amortization between $2 million and $5 million.
San Jose, Calif.-based Togo's is the master franchisor for 261 Togo's sandwich shops in the Western U.S. The company has about $150 million in annual system-wide sales.
Mainsail was approached by Tony Gioia, who had formerly served as president of Baskin Robbins, to partner in making a bid for Togo's, a property that Dunkin' Brands put up for sale last October. Gioia will be chairman and chief executive of Togo's.
The buyout firm originally liked the chain for its strong presence in the California market, where it was founded over 40 years ago on the campus of San Jose State University.
"The awareness of the brand despite the very little market they've done surprised us," Payne said.
The company has also been growing nicely in recent years, with same-store sales growth around 6% in the last year, Payne said.
Mainsail believed the company would be well-served under an owner dedicated to growing one brand. Togo's had previously been mired within larger organizations since Allied Domecq PLC, the British wine concern, bought the company in 1997. Allied was later sold to Pernod Ricard SA, which in March 2006 sold Togo's along with Dunkin' Donuts and Baskin Robbins for $2.43 billion to Bain Capital LLC, the Carlyle Group and Thomas H. Lee Partners.
Mainsail eventually hopes to grow Togo's franchisee base, although believes that focusing on supporting the existing franchisee base is key. "If we make them successful, that word spreads and it becomes a self-fulfilling prophecy," Payne said.
A tricky part of the Togo's acquisition is that about 70 of its stores are co-branded with Baskin Robbins ice cream locations, meaning that franchisees of those locations will now have two parents to report to in Dunkin' Brands and Togo's.
There is no plan to separate the co-branded stores, Payne said, adding that each are run by the same franchisees, who were already running each under a separate franchisee agreement.
The sale process for Togo's generated a great deal of interest, given its strong regional following, Benjamin Cary, senior vice president at Trinity Capital LLC, said, an aspect that most restaurant concepts will need in the immediate deal-making environment.
"There's going to be a flight to quality," Cary, who advised the sellers on the sale, said. "Second-tier, regional brands are going to have a tougher time getting good valuations."
Togo's will be the first restaurant deal for Mainsail, which primarily does deals for service-related businesses.
The firm was founded in 2003 by Payne and Gavin Turner, who met while with Summit Partners. Mainsail raised $33 million for its first fund in 2005. It has done six deals to date.
Dunkin' Brands executives declined to comment on the deal.
