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Food Fetish

The trade publication Restaurant Finance Monitor reported more than 50 major equity investment deals from January 2006 to mid-2007, involving well-known brands such as Dunkin' Donuts, Outback Steakhouse and Sbarro.

And they're not alone. Restaurant deal broker Jesse Lyon, a partner at law firm Davis Wright Tremaine, says there's a growing interest in private equity in food service and hospitality companies across the country. Restaurant chains are turning to private equity, Lyon says, to get funding faster. Private equity firms look for mixed ingredients in a restaurant investment, including a solid track record of success with multiple units, a strong trademark or brand identity, an experienced management team, good cost controls, and well-documented operations and training procedures.

In August, four-unit Rose's Restaurant and Bakery in Portland, Oregon, received a $5.2 million investment from Aequitas Capital Management. The investment firm acquired a minority stake in the chain. Seven years ago, Jeff Jetton, 41, became a co-owner of the 51-year-old restaurant and began looking for private investors to expand the chain without taking on debt. Now he plans to open several more locations.

Before making the deal with Aequitas, Jetton met with 10 private equity firms. He picked Aequitas because he prefers local investors who know the brand firsthand. Brian Oliver, senior managing director and principal of Aequitas, says Rose's fit their menu of requirements because it's a well-run, proven concept that could generate fast growth by adding restaurants in its established region and beyond.

This story appears in the December 2007 issue of Entrepreneur. Subscribe »