El Pollo Loco to Be Sold for $400 Million

A new buyer wants the crazy chicken to fly -- cross-country.

El Pollo Loco Inc., a fast-food stalwart in Southern California, said Wednesday that it was being purchased by New York investors who plan to upgrade and expand the Irvine-based chain nationwide.

Trimaran Capital Partners agreed to buy the chain, which specializes in marinated flame-grilled chicken and other Mexican-inspired entrees, for about $400 million from American Securities Capital Partners, a private investment firm.

The move comes amid heightened growth in the restaurant industry as Americans continue to spend more on meals away from home and competitors jockey to capture diners who want inexpensive food that hasn’t been deep-fried or juiced up with fat.

But whether El Pollo Loco’s healthy menu can be a hit elsewhere remains to be seen, analysts said.

“There is a consistent buzz from consumers saying they want healthy fast-casual food, but do they truly?” asked hospitality consultant Richard Wheeler of Fessel International. “Everyone talks healthy. Not nearly everyone does it.”

So-called fast-casual restaurants such as El Pollo Loco aim to offer higher-quality food and decor than their traditional fast-food competitors.

Trimaran is betting that El Pollo Loco, Spanish for “the crazy chicken,” has the right mix of healthy but tasty fare. Trimaran has targeted New York, New Jersey, New England, Chicago, Denver and Texas for expansion and has signed franchise agreements for new stores in those markets, Trimaran managing partner Andrew Heyer said.

The company hopes to open 150 locations in the next five years, adding to its current 328 sites, which are mostly in Southern California, with a few in Arizona, Nevada and Texas.

Members of El Pollo Loco’s management, led by Chief Executive Stephen E. Carley, will invest in the company and retain their current positions, Heyer said. The purchase is expected to close in the fourth quarter.

“This is a seriously talented management team, and we think they can run a substantially larger business,” Heyer said.

The chain has turned around since American Securities bought it from now-defunct Advantica Restaurant Group in December 1999. The previous owner had neglected El Pollo Loco to concentrate on reviving another one of its companies, the Denny’s restaurant chain, said Glenn Kaufman, managing director of American Securities.

El Pollo Loco “was overleveraged and operating as an orphan brand,” Kaufman said. “There was clearly deferred maintenance and it was not up to competitive standards in the industry. People supported the brand because, despite the fact there was such significant underinvestment, they just loved the chicken.”

Most of El Pollo Loco’s competition comes from mom-and-pop stores, small local chains and higher-priced fast-casual outlets, Carley said. However, he said, “We do watch the Taco Bells, Del Tacos and fry guys like Popeyes and KFC.”

El Pollo Loco reported a $2.3-million profit in the second quarter, an improvement over a $270,000 loss a year earlier, thanks to sales growth and labor cost controls, according to documents filed with the Securities and Exchange Commission. Sales at stores open at least a year, including both company-operated and franchised restaurants, increased 9.4%.

Carley said El Pollo Loco’s growth would be driven by selling multiunit franchises to experienced franchisees outside of the Southwest. Plans call for new stores to have a simpler cooking system that cuts chicken preparation time to 28 minutes from an hour by putting the meat in an oven before it goes on the grill.

New stores will also get improved interior finishes, including upgraded fixtures, ceilings and wall treatments. “The dining rooms will be much more welcoming, upscale and comfortable,” Carley said. There is also a remodeling program underway for current stores.

El Pollo Loco needs to upgrade its decor and presentation to be a serious competitor in the fast-casual segment, hospitality consultant Wheeler said.

“They have been limited to being a regional chain,” he said. “They do have a quality product and it appears that they do have the opportunity to expand substantially beyond their home base in Southern California.”