Consortium Plans to Expand Global Operations

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CHICAGO (AdAge.com) -- Expansion is on the menu at Dunkin’ Brands now that it has agreed to be purchased by a trio of private equity firms for $2.43 billion in cash.
The thee Dunkin Brands -- Dunkin' Donuts, Baskin-Robbins and Togo’s -- will be acquired and expanded by an investment consortium.
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The partners, Bain Capital Partners, Thomas H. Lee Partners and the Carlyle Group, are buying the company from Pernod Ricard and plan “an aggressive expansion program across the U.S. and throughout the world” for the Dunkin’ Donuts, Baskin-Robbins and Togo’s chains.

Global expansion
“With our new owners ready to support us in our growth efforts, a strong management team on board and continued excellent franchisee relationships, Dunkin’ Brands is well-positioned for global expansion,” Dunkin’ Brands CEO Jon L. Luther said in a statement.

Dunkin’ franchises more than 12,000 total restaurants worldwide, with some 6,500 Dunkin’ Donuts shops in 29 countries, 5,600 Baskin-Robbins worldwide and 400 Togo’s in the U.S. The coffee and donut chain has 4,400 stores in 36 states, mainly clustered in New England, its stronghold.

Bain one to beat
The company was put up for auction after French beverage concern Pernod Ricard acquired Allied Domecq. Dunkin’ Donuts posted $3.4 billion in domestic revenue in 2004, up 13% from the prior year, outpacing the restaurant industry. That chain accounted for the bulk of the $4.8 billion in worldwide revenue Dunkin’ Brands posted last year.

The consortium led by Bain was considered the firm to beat. It owns about 38% of Domino’s Pizza. Thomas H. Lee’s best-known food and beverage purchase is its $135 million buyout of Snapple in 1992, which two years later it sold to Quaker Oats for $1.7 billion.

Several other private equity consortiums were reported to have bid for the Dunkin’ Brands portfolio, including Kohlberg Kravis Roberts & Co. with Trimaran Capital Partners; and JP Morgan Chase with Providence Equity Partners and Triarc.

Acquisitions hot
“There’s a lot of interest in these restaurant and food retail properties right now,” said Allan Hickok, a former restaurant analyst who is now president-chief operating officer of Let’s Dish. “The commonly held belief is it’s hard to make money, but there are a lot of institutions out there who like to buy cash flow.”

A November report from Nation’s Restaurant News said 17 restaurant chains were sold to private equity firms in the past 12 months.

Domino’s has been by most accounts a very successful investment for Bain. Since the pizza delivery chain went public, it boosted its national marketing and advertising contribution from 3% to 4% of retail sales and estimated that the domestic units contributed about $1.3 billion in national, local and co-op advertising.

Sid Feltenstein, chairman of Sagittarius Brands and a top marketer at Dunkin’ Donuts for a dozen years, is bullish on the chain’s management team. “If you look at what they’ve done over the last eight to 10 years, they went from donuts, muffins and bagels to become very much of a drinks business,” he said.

More coffee, less dounts
In recent years, Dunkin’ has put more emphasis on its coffee than donuts, and positioned the brand as a relief for Starbucks-haters and working-class joe drinkers. With its coffee costing anywhere from 20% to 50% less than Starbucks, it’s well positioned for growth, said Bob Goldin, exec VP at Technomic.

”Their donuts are almost becoming less important in the mix. It’s a beverage shop that sells baked goods.” He said the biggest opportunity for growth is out West. “With some attention, I think they can be very formidable. The units need a little more consistency and upgrading. They need to tighten up their franchisee network a bit.”

Dunkin’ Donuts agency is Interpublic Group of Cos.’ Hill Holliday, Boston. The chain spent $77 million in measured media last year and $65.6 million in the first nine months of this year, according to TNS Media Intelligence.

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