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Day 139 in MIT Sloan Fellows Class 2023, M&A 11 "Public to Private"

M&A MBA SFMBA MIT operation Strategy business

Outback LBO deal by Bain Capital

In 2007, Bain Capital partnered with Catterton Partners and other investors to execute a leveraged buyout (LBO) of OSI Restaurant Partners, the parent company of Outback Steakhouse. OSI Restaurant Partners owned several restaurant chains, including Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, and Fleming's Prime Steakhouse & Wine Bar.

 

The LBO deal was valued at around $3.2 billion, with an additional $185 million paid for outstanding stock options. In this transaction, Bain Capital and its partners used a combination of their own capital and borrowed funds to acquire OSI Restaurant Partners, taking the company private.

 

The goal of the LBO was to provide the management of OSI Restaurant Partners with greater flexibility to execute their long-term growth strategy, away from the pressures and scrutiny of the public market. The investors, including Bain Capital, expected to profit from their investment through improved operational performance and, eventually, through a potential exit strategy such as a sale or an initial public offering (IPO).

 

In 2012, Bloomin' Brands Inc. was created as the new parent company for OSI Restaurant Partners, and it went public through an IPO. This allowed Bain Capital and the other investors to partially exit their investment and realize gains from the LBO.

 

Framework to analyze LBO deal

Strategy

  • Low price due to missing earning, skeptical of a turnaround, Pirate Capital Insiders and stagnating growth
  • Less pressure for growth by going out from public market
  • Will have to agree to a go-shop clause in the agreement

Operation

  • Renovate marketing strategy and menu
  • Reducing the cost( private jets, crayon, serving size)
  • New customer segment and strategy shift from new chains to CRM(Drive same store sales)
  • Cashflow optionality with "more CapEx" and "Payout Debt"
  • Highgrade restaurant system vs indiscriminate expansion

Financial Engineering

  • Curve the debt pressure with property company
  • Use the property company as a firewall
  • Equity partnering - 2 PE firms + founder & mgt rollover
  • Max debt
  • Too much leverage if something goes wrong

Management incentives

  • Bain's value "Trust" in support backup and consulting capablity
  • If the discussion went wrong, there are many deep industry bench as replacement pool

Key takeaways

What is the key improvements from LBO?

  • In OSI, better management and cost control

Why not fix the problems as a public company?

  • The company had already lost credibility and started running downside cases
  • Insiders had preferences and steered the deal to Catterton and Bain