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02/25/2008

TSG has big plans for Irvine's Yard House

JESSICA C. LEE | ORANGE COUNTY BUSINESS JOURNAL

TSG Consumer Partners LLC has big plans for Yard House Restaurants. The San Francisco-based private equity firm plans to open 50 restaurants in the next 3-5 years.

February 25, 2008 – TSG Consumer Partners has big plans for Irvine’s Yard House Restaurants LLC.

The San Francisco-based private equity firm, which bought a 70% stake in Yard House with an estimated price of less than $200 million, plans to open 50 restaurants across the U.S. in the next three to five years, according to Pierre LeComte, TSG principal.

Yard House could then go public or be sold to another company, he said.

"We want to expand Yard House nationally," LeComte said. "There’s the likelihood that it could be the next Cheesecake Factory."

Yard House, which runs restaurants that feature hundreds of beer taps and a classic rock theme, counted about $115 million in sales and before the deal.

Now, it’s eyeing sales of $175 million in 2009 and $200 million in 2010 by opening four restaurants a year during the next few years, according to founder Steele Platt.

"We’re very focused on following a growth path for the next three to five years," Platt said. "I think TSG will navigate us to an appropriate destination."

Yard House is pushing forward with its plans despite a slowing economy that has many consumers strapped for cash. The restaurant industry also is facing the rising cost of materials, labor, insurance, real estate and energy, Platt said.

"A lot of restaurant chains have slashed their growth and they’re pulling back the reins," Platt said. "We’ve always grown slowly and had a good control over the business. We’ve never had to change gears."

TSG plans to work with Platt, who still runs the company as chief executive, and the original Yard House management team to open more restaurants as well as launch a smaller bar and grill chain, LeComte said.

"We like working with the original entrepreneur team. We seek to supplement them. We’re not operators," LeComte said.

Platt, partners Carlito Jocson and Harald Herrmann and about 100 other employees sold stakes in the company to TSG back in August. The deal helped Yard House dole out more than $12 million to employees who owned company stock, Platt said.

"(The deal) represented the best opportunity to give all of our investors a healthy payback and reward our partners for their 10 years of effort," Platt said.

Platt and other Yard House employees still own about 30% of Yard House, which they could cash out if it’s sold or goes public, LeComte said.

Getting Yard House on par with Calabasas-based Cheesecake Factory Inc. is a goal for both parties. Cheesecake Factory operates nearly 140 restaurants and has a market cap of about $1.4 billion.

"Getting to that level is definitely something that we aspire to do," Platt said.

Yard House, which owns 18 restaurants in Southern California, Arizona, Hawaii, Colorado, Illinois, Kansas and Florida, hopes to have 200 locations and $1 billion in revenue in the future, Platt said.

Platt opened the first Yard House in 1996 in Long Beach with Herrmann and Jocson.

The Yard House is similar to the Boiler Room in Denver, a restaurant that Platt started and later sold before moving to California.

It competes with Cheesecake Factory and Huntington Beach-based BJ’s Restaurants Inc.

Restaurants feature more than 100 beers on tap and 120 American food menu items. The name, Yard House, stems from the signature three-foot tall glasses used to serve beer.

The company is making a big push to grow in states such as Florida and Texas, Platt said. Yard House is also eyeing Nevada. The company will be opening its first Las Vegas restaurant in March, he said.

Yard House also plans to launch a chain of Yard House Bar and Grill restaurants, smaller versions of Yard House’s restaurants that will open in suburban areas. They’ll be in free-standing locations and feature Yard House classics on a smaller scale: 50 draft beers and 60 menu items, Platt said.

"The restaurants will have the same Yard House experience but with a smaller, neighborhood feel," Platt said.

They’ll compete with other casual restaurants such as Glendale-based IHOP Corp.s Applebee’s, Dallas-based Brinker Internationals Chili’s and Carlson Restaurants Worldwide Inc.’s TGI Friday’s, Platt said.

The first Yard House Bar & Grill is set to open in Chino Hills in May. Depending on how well the restaurant performs, the company could open several more in the next few years, Platt said.

Success in OC

TSG has done well in Orange County.

"All you have to do is look at TSG’s track record," said Mike Flynn of Newport Beach’s Stradling Yocca Carlson & Rauth, who represented Yard House in the deal with TSG. "They’ve been very successful here."

The firm, which invests in beverage, food, personal care product and drug pet care companies, has a few other local businesses under its wing.

In 2004, TSG acquired a stake in Irvine’s PureOlogy Research LLC, an upscale hair care company. PureOlogy was sold to L’Oreal SA in May.

Other local companies in its portfolio include Anaheim-based frozen Mexican food maker Don Miguel Mexican Foods Inc. and Meguiar’s Inc., an Irvine-based maker of premium car products. Both companies generate more than $100 million in revenue, LeComte said.

More deals could follow.

"Orange County is very entrepreneurial and there’s been a lot of innovation in the consumer products arena," LeComte said. "Orange County’s labor force and access to capital has made it very fruitful for us to partner with local entrepreneurs."

TSG is eyeing local consumer product companies with strong brands that generate more than $20 million in revenue, LeComte said. Companies could range from clothing makers and cosmetic companies to restaurant operators and retailers, he said.

"We’re looking for fast-growing brands with strong consumer recognition," LeComte said.

TSG, which also has an office in New York, has employees scouting the county, according to LeComte.

The firm has no plans for an office here, he said.

*reprinted with permission of the Orange County Business Journal

ABOUT TSG CONSUMER PARTNERS LLC

TSG Consumer Partners, LLC is a leading investment firm with
approximately $5 billion of assets under management, focused
exclusively on the branded consumer sector. Since its founding
in 1987, TSG has been an active investor in the food, beverage,
restaurant, beauty, personal care, household and apparel & accessories,
and e-commerce sectors. Representative past and present partner
companies include Duckhorn Wine Company, vitaminwater, thinkThin,
popchips, Muscle Milk, Yard House, Stumptown, Pabst, Planet Fitness,
REVOLVE, PAIGE, Smashbox Cosmetics, Pureology, Sexy Hair, e.l.f. Cosmetics
and IT Cosmetics.

CONTACT

Meghan Gavigan / Dan Goldstein
Sard Verbinnen & Co

Meghan Gavigan - 212.687.8080

Dan Goldstein - 310.201.2040

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