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How CapitalSpring’s Focus on the Restaurant Industry Serves as a Powerful Differentiator in the World of Private Investing

CapitalSpring’s continued ability to provide creative capital solutions to its restaurant partners is paving the way for ample growth in 2019.

By Katie LaTourStaff Writer
SPONSORED 7:19PM 04/24/19

In the everyday dealings of private equity firms and big banks alike, capital structures tend to be templated rather than arising from customized strategic partnerships within a given industry. A generalist investment strategy thus tends to impede its purveyors from the kind of industry knowledge that allows for tailored capital solutions.

Enter private investment firm CapitalSpring, which provides structured capital to proven operators across the restaurant industry. Co-founded in 2005 by Managing Partner Richard Fitzgerald, CapitalSpring has grown to a 28-person team, with offices in Nashville, New York and Los Angeles.

As the restaurant industry has evolved, so too has CapitalSpring. Over the last 14 years, the firm has developed into a sought-after investment partner for leading operators in the restaurant industry thanks to two primary differentiators: one, the firm’s depth of experience—CapitalSpring boasts an investment track record across more than 100 restaurant companies and 60 brands—and two, a flexible investment approach that allows the firm to craft versatile, transaction-specific structures ranging from debt to equity.

CapitalSpring’s Managing Director and Head of the Restaurant Investment Group, Erik Herrmann, spoke to both depth of experience and the advantage conferred by the firm’s specialized focus.

“We are unique in the investment community in that we are 100 percent restaurant-focused,” Herrmann said. “That context guides us in a sector that still possesses a volatility stigma despite greater interest from institutional capital these days.”

Fear of volatility comes, in part, from a lack of knowledge about the nuts and bolts of the industry. To overcome this, CapitalSpring’s team combines experience in restaurant operations, private equity, lending and more, all laser-focused on the restaurant sector.

Over the years, we’ve benefitted from a relative lack of capital targeting the restaurant industry. It has allowed us to build a broad network and expand our specialization advantage,” explained Herrmann. “While we’ve seen more firms come in—whether family offices or alternative lenders, companies coming in cold today have to tread very carefully to avoid the pitfalls that are often associated with the restaurant industry.”

Not so for CapitalSpring, emphasized Herrmann.

“CapitalSpring has historical context that we can leverage in every transaction opportunity we evaluate, whether by brand, segment, or geography, and that’s a real differentiator. We’ve learned so much in these 14 years, and it’s a knowledge base that would be very difficult to replicate.”

Unlike other lenders or investors, CapitalSpring also offers versatile investment and capital solutions.

“Most investors are product-based; they have a singular template in terms of how they approach transactions, which doesn’t necessarily work for the counterparty,” Herrmann said.

In contrast, Herrmann emphasized that CapitalSpring’s structured investment solutions ultimately operate on a deal-by-deal basis, focusing first on “the right people and the right opportunity.”

“We sit down with [prospective clients] and design an investment solution to meet their goals,” Herrmann said. “That could be a loan, a tranche of structured capital, or acquiring the business outright.”

As recently as last May, CapitalSpring structured and led the acquisition financing and recapitalization of 134 Panera Bread Cafes on behalf of Manna Development Group. Deals like this point to the kind of innovative opportunities ahead for CapitalSpring, and further clarify their position in the industry.

“What we offered just wasn’t available from other financial institutions that make up the restaurant finance ecosystem,” said Fitzgerald. “We want to open doors to say: ‘How can we help you do things you never thought possible?’”

CapitalSpring’s Panera investment was substantial not only given its scale, but because of the sophisticated solution developed and deployed by the firm.

“It’s a great example of our capability because Manna is a family-owned business that was balancing their desires for retaining control and 100% ownership of their business with their desire to grow. Our structured capital solution allowed them to have both, Fitzgerald explained. “As franchisee organizations have gotten larger, this is a common problem.”

With deals like the Panera financing and similar solutions in the firm’s portfolio, CapitalSpring is now focused on bridging what Herrmann characterized as “an awareness gap in the marketplace.”

“We’re organized differently and for that reason, people sometimes have difficulty understanding our business model,” Herrmann said. “Most firms are organized by product and invest across many industries. Bank of America, for example, sells you a loan. Or a typical private equity firm sells you a control equity product that’s identical or nearly identical to other positions in their portfolio. Our model flips that script; we offer a broad range of investment solutions, unique to the goals of a specific transaction, but only to the restaurant industry. That flexibility gives us the freedom to focus on the counterparty’s objectives over selling a product off a shelf.”

In terms of CapitalSpring’s goals for 2019 and beyond, the firm will continue to identify “partners for whom it can offer a differentiated financial solution,” according to Fitzgerald, in order to “grow their business in ways they never thought possible.”

“We are emerging as a partner of choice for sophisticated operators trying to expand their businesses, and who historically only worked with banks and other more traditional financing sources,” said Fitzgerald. This evolution has come as CapitalSpring emerges as a thought leader and purveyor of best practices given their unique perspective on the industry and in-house operations muscle.

“Every aspect of our organization is geared toward the restaurant industry,” concludes Herrmann. “It permeates everything we do. Over time, if we invest in that, we believe we will have an institutional knowledge advantage that’s second to none.”