Is PEG financing in your future?
By Jim Kendall
This column originally appeared in the February 22, 2016 Daily Herald
It’s not an unusual question when business owners become introspective: Is a PEG, or maybe an angel investor, right for my business? The companion question goes something like this: Just how do these options operate?
Neither answer is easy.
Two definitions, greatly simplified here but based on a conversation with Growth Law attorney Bill Price, whose Warrenville law firm is active in the business buy-sell marketplace, will help:
* Angels tend to be individual investors who invest in start-ups or other early stage businesses that need dollars to get rolling. In return, angels typically take a share of the company.
* Private equity groups (PEGs) do much the same thing, though generally later in a business’ life. PEGs typically have an industry focus. For example, restaurants are a primary interest at Dallas, TX-based Chalak Mitra Group.
Chalak Mitra is our focus, in part because the group seems to be in the early stages of a turnaround at Chicago-area Go Roma restaurants. The Go Roma concept – fast casual Italian food, from scratch – initially seemed doable, but high costs, especially rent, nearly scuttled the idea.
The first Go Roma opened in 2004. Eight others followed in fairly quick order. Today there are three, one each in Northbrook, Bolingbrook and Glenview. In five years, however, Josh Hicok says there could be as many as 300 – most likely franchises.
Chalak Mitra owns the Go Roma brand. The founders, and at least two other ownerships, are long gone. Hicok, a Chalak Mitra Group (CMG) operating partner, is the local boot on the ground, moving here last summer to breathe life into the operation.
“We’re all restaurant guys,” Hicok says. “We buy distressed companies. We look at the restaurants, look at the financials, see where the problems are and ask ourselves whether we can fix the situation.
“We go in knowing it’s not going to be a profit tomorrow.”
PEG funds typically bolster whatever needs bolstering; the investors then sell, hopefully at a profit. The process, though, brings a cautionary word from Harriet Parker, manager of the Small Business Development Center at Aurora’s Waubonsee Community College.
Business owners “often don’t understand what’s involved,” she says. “We try to explain investors’ motivations. Investors will want an exit strategy (based on) rapid growth and high return.”
While the usual PEG concept is to fix and sell a struggling operation, “We haven’t sold a single one,” Hicok says. We fall in love with the brands.”
So far, so good. According to company furnished data, CMG owns eight restaurant brands, plus “numerous” KFC, Taco Bell and Long John Silver locations.
The question is how you explore your business’ PEG opportunities. “It’s purely people you know and how your concept fits with their team,” Hicok says. “You have to market yourself.”
Price suggests exploring membership lists at the Midwest Business Brokers and Intermediaries, Lake Zurich, and the Association for Corporate Growth, which has a Chicago chapter.