Dave Pace: I started out with PepsiCo and when we spun it out, I was at Yum! Brands and then Starbucks. I also spent time at Bloomin’ Brands, was the CEO of Jamba Juice, and now I’m chairman of Red Robin. My background is in the public company side, whereas Andy is the founder-entrepreneur who built his own business up successfully and then sold it. We realized that we do see the world similarly, but it would be great to partner with somebody who comes from the opposite side.
AP: With the SPAC world, you’re looking at a private company, often run by a founder or a founder in conjunction with a private equity group (which is sort of what I’ve been doing for the last number of years) who’s about to make the scary jump into the public markets. So I think it’s pretty useful to have both of us talking to these people. I typically understand what’s going on in that founder’s head, but Dave can understand much better what they’re worried about and what the answer is. It’s very reassuring to have somebody who’s been there, done that. So yeah, I think we’re a good duo.
Why are SPACs suddenly such a hot commodity?
DP: I think there’s a couple of things. There were a bunch of companies that were thinking about going public before COVID, and it delayed them. They were ripe to be in the public markets either through an IPO or through a SPAC.
But the interesting twist with a SPAC is that COVID created a scenario where you had fairly normal performance up until the end of 2019, then 2020 was pretty much a write-off. 2021 is a transition year back, and people generally think 2022 will start getting back to normal. When you do an IPO, you can only talk about your past results, and when you tell me about past results, at this point in time, it’s not very attractive. With a SPAC, you have the unique advantage of being able to tell the story forward. So you can tell what happened up through 2019 and 2020, but you can also supplement that by telling the story of ’21, ’22, ’23, and as far out as you think is realistic. That provides a real advantage at this particular moment in time; it wasn’t as relevant during traditional years.
AP: In the typical boom-and-bust cycles of the market, companies all go public and then they stop going public and then they go public again. What happened in 2020 was you had this interesting confluence of not only companies that were ready to go public, but you also had this five-year drought on the market. There hadn’t been any restaurant companies that had gone public since 2015, when you had a little spurt with Chipotle and Shake Shack. During that time, restaurants were very popular, private equity companies had a lot of money, they bought them up, and they held onto them.
So 2020 was the year that a lot of these companies were going to say, ‘OK, time to show off to the public market, time to be a big company,’ and all of a sudden, boom: The wind is taken out of their sails, the balloon deflated. And these were very good companies; they had taken the time to have their books audited and maybe they spent some real money on a good CFO. They’d taken all the necessary steps, but now it could be two or three years before they’re able to point to a nice, solid, full fiscal year in an IPO. And so for a bunch of them, this was the best alternative.
In terms of scoping out strong acquisition targets, were there any advantages to the chaos of last year?
AP: In a normal year, the rising tide lifts all ships. Everybody’s numbers look pretty good. Everybody is a genius when the market is good. 2020 kind of ripped the Band-Aid off management teams. When have you ever gotten as good a view as you did in March, April, and May of last year as to which CEOs are nimble, which CEOs are thinking on their feet, which CEOs are creative, what companies are resilient, what companies have loyal fans that will line up around the block to pick up a bag? This was a once-in-a-lifetime opportunity to see behind the curtain of a lot of these companies.
DP: As we talked about who we wanted to partner with in this process, we were very clear that we were interested in growth companies with strong management teams. We were not looking at value plays for distressed companies that might have weak balance sheets or other issues that needed a lot of attention. We wanted growth stories, strong management teams, and great futures that we could help accelerate in the public markets.
Is a certain foodservice category or segment a more attractive acquisition than others?
AP: I would say no. There are interesting, creative management teams and exciting growth stories in fast casual, full-service dining, delivery technology, and even specialty products. If you had a better way to make heat-proof to-go containers, this would be a great time for you. So no, I don’t think there’s a segment of the industry we’re looking at. It doesn’t even have to be a restaurant per se. It has to match that sort of growth and strong management profile, and it should be something where we can add value. I’ve never run a to-go container business, but I understand a lot about how they work and who their customers are and what makes a good product and a bad product.