Buyout Positions Taco Bueno for Super-Size Growth

DALLAS-Marking a series of firsts with the transaction, Palladium Equity Partners LLC has taken control of Taco Bueno with funds from a $400-million-plus acquisitions pool targeting companies with Hispanic appeal. Taco Bueno is the private equity firm's first restaurant chain and the fund's flagship acquisition.

The sale, announced in June, closed yesterday with the 38-year-old, Dallas-based chain getting a new owner and new CEO on the same day. Palladium's plan for the 140-unit chain, sporting $140 million in annual revenues, will be led by John Miller, who resigned in January as president of Romano's Macaroni Grill, the Italian cuisine flag for Dallas-based Brinker International Inc. Palladium's pick has been a key strategist and president of Mexican concepts for Brinker's On the Border, Cozymel's, Chili's and Taco Cabana.

"We see a great opportunity to grow a first-class brand and back a first-class management team," says Peter A. Joseph, managing director for the New York City firm. Neither buyer nor seller, Jacobson Partners, is talking about the price of the trade, but it's not a bail-out situation, he stresses to GlobeSt.com. Key to the outcome is "the company is capitalized for both internal growth and franchise growth," he adds.

According to Joseph, Palladium approached Benjamin Jacobson, managing general partner for the New York City-based seller of TB Corp. "They were beginning to consider a sale and we were just lucky enough to get there early," Joseph says.

"Mostly it will be business as usual," says Miller, whose predecessor Stephen Clark has moved to Boston to be CEO of Jacobson's Bertucci's Italian restaurants. "There will be some changes as we start to accelerate. We're going to expand the borders of the brand to take it from a regional chain to a super-regional chain."

Miller says the expansion will add 10 to 12 corporate-owned restaurants this year, 15 in 2006 and 20 every year thereafter. He predicts Taco Bueno will break into "two or three" states for two years and then ramp up to "four or five" states. He isn't ruling out an international play at some stage in the development, which is what he did for the Brinker's brands.

On the franchise side of the growth strategy, two area development contracts are in hand and five more are set to be signed in 30 to 45 days, says Jeff Seeberger, Taco Bueno's vice president of finance. Taco Bueno kicked off a franchise program in November 2004. Eight months ago, it inked a deal with Tulsa, OK-based US Beef Corp., owner of 220 Arby's restaurants, to open nine Taco Bueno restaurants in Northern Arkansas, Central Missouri and Kansas. A second Tulsa company, Quality Brand Management LLC, signed its deal Aug. 1 to build five restaurants along the Interstate 40 corridor in Arkansas.

Seeberger says the franchise program is aimed at signing seasoned restaurateurs for area development pacts for five to 10 locations. The freestanding stores, averaging 2,600 sf, cost $1 million to $1.2 million apiece for "turnkey" deals with 5% royalty and 5% marketing fees. Seeberger says each restaurant's annual run rate is $1.15 million.

"Our plan is to double the size of the company in five years, for sure," Seeberger says. "And with this new company's more aggressive posture, it could be in three-and-a-half years."