By Duane D. Stanford
Oct. 16 (Bloomberg) -- Roark Capital Group, the Atlanta- based owner of brands including Carvel ice cream, plans to invest the most in its eight-year history next year as the private-equity industry thaws.
Roark, named for Ayn Rand’s protagonist in “The Fountainhead,” invested $180 million last month in a pet retailer and a garbage hauler, managing partner Neal Aronson said. That’s almost triple the $65 million the fund committed in the previous 20 months, he said in an interview this month.
“We finally feel that the economy has stabilized,” Aronson, who manages $1.55 billion in assets, said. “Business owners are picking up their heads and saying, ‘We have more visibility into the future.’”
Private-equity transactions will accelerate in the second quarter of 2010 following a two-year freeze triggered by the global credit crisis, said Aronson, 44.
“The financial engineers will be less active,” Aronson said. “Now people are looking for partners who can actually help them grow their businesses and can do so without putting their business in jeopardy.” The entrepreneurs Roark is seeing aren’t interested in highly leveraged deals, he said.
Private-equity firms typically finance transactions with a combination of investors’ cash and borrowed money. Roark’s debt load is less than 2.5 times earnings before interest, taxes, depreciation and amortization, Aronson said. The fund’s investors include Goldman Sachs Group Inc., Aronson said and a Goldman Sachs spokeswoman confirmed.
25 Businesses
Roark holds mostly majority stakes in 25 businesses, including 15 franchise companies. About 20 percent of the portfolio is made up of restaurants, including Cinnabon, Schlotzsky’s and Moe’s Southwest Grill, and nearly all are held within its Focus Brands. Roark, with $750 million available in its fund, is looking to invest in more restaurant companies, Aronson said.
While he said Roark is planning to spend more in 2010 than the $180 million it has spent so far this year, it does not have a specific target.
Roark’s majority investments also include BatteriesPlus, Fastsigns and suburban Atlanta-based Primrose Schools.
In September, the firm invested $80 million for a majority stake in Markham, Ontario-based Pet Valu Inc., a retailer of pet food and supplies. The fund spent another $100 million for a minority stake in Longwood, Florida-based Waste Pro USA Inc., which hauls commercial and residential waste.
Roark completed a $1 billion capital round in January 2008, adding it to the $550 million in assets the firm already held. It then parked the money. Overheated debt markets fueled by cheap borrowing costs had inflated asking prices for companies to “unsustainable and unnatural” levels, Aronson said.
On the Sidelines
Roark sat on the sidelines as the economy fell into the deepest recession since the 1930s and unemployment hit a 26-year high. Uncertain corporate profits and collapsing debt markets also kept Roark from making investments, Aronson said.
Aronson’s firm draws inspiration from “Fountainhead” protagonist Howard Roark, an architect who refused to design his works based on fads, Aronson said. In the 1943 novel by Russian- American Rand, Roark was ultimately deemed a visionary and his competitors called frauds.
“Howard Roark was thoughtful and had a vision and he was disciplined and he stuck to what he believed in, even when it went against conventional wisdom,” Aronson said.
Private-equity firms reported 654 deals during the first three quarters of this year, about 60 percent fewer than the 1,532 deals reported in the year-ago period, according to Pitchbook Data Inc., a Seattle-based researcher.
‘Steady Rise’
A “steady rise” in the median private-equity investment from $23 million during the first quarter of 2009 to $61 million in the third quarter signals a possible turnaround in the industry, said Adley Bowden, managing editor of Pitchbook publications. Most of the gains have been driven by deals for companies valued between $250 million and $1 billion, he said.
In 2009’s largest deal so far, Blackstone Group LP agreed on Oct. 7 to buy Anheuser-Busch InBev NV’s amusement park business for as much as $2.7 billion. Silver Lake agreed last month to take a majority stake in EBay Inc.’s Skype unit for $2 billion.
“There is still $400 billion of money unspent out there that is kind of burning a hole in a lot of these guys’ pockets,” Bowden said in an Oct. 7 interview.
To contact the reporter on this story: Duane D. Stanford in New York at dstanford2@bloomberg.net