El Pollo Loco Stake to Be Sold to Public
El Pollo Loco is about to add a new item to the menu -- shares in the fast-food chain.
An arm of Trimaran Capital Partners, a New York asset management firm, filed a registration statement with the Securities and Exchange Commission on Monday, saying that it planned to sell a stake in the Irvine-based Mexican-themed chicken restaurant company to the public.
Trimaran didn’t say how many shares would be sold, but according to the filing the sale would have a proposed aggregate offering price of about $135 million.
The funds would be used to repay debt, pay Trimaran an advisory fee and make a special payment to end a management contract.
The offering comes as the restaurant company is attempting to move out of its core Southern California market, which accounts for 88% of its sales, analysts said.
“This will be a question of execution,” said Doug Christopher, an analyst with Crowell, Weedon & Co. in Los Angeles.
“The key in restaurants is consistency. That’s where large chains like Starbucks and McDonald’s have done a good job,” Christopher said.
Management also must work well with franchisees, who are a large part of El Pollo Loco’s growth strategy, accounting for 194 of its 340 stores.
The company has franchise commitments to open 96 restaurants in California and also other regions, including the Pacific Northwest, Washington, Arizona, Texas, Illinois, the New York metropolitan area and New England.
“As they grow, they have to get franchisees to follow their plan,” Christopher said.
The offering comes at a hot time for new food stocks. On its first day of trading in January, Chipotle Mexican Grill Inc.’s stock gained $22 to close at $44.
El Pollo Loco has built its business selling marinated, flame-grilled chicken and a variety of Mexican-style chicken offerings. Despite the Mexican theme, its biggest competition is Yum Brands’ KFC chain, said Bob Sandelman, chief executive of restaurant market research firm Sandelman & Associates.
El Pollo Loco has benefited from changes in market tastes to foods that are perceived to be healthful and nutritious, he said.
The chain also has found success with creative menu choices. One of its fast-growing items is tortilla soup, making El Pollo Loco one of the only fast-food companies to turn soup into a big seller, Sandelman said.
Entrepreneur Pancho Ochoa opened the first El Pollo Loco as a roadside chicken stand in the small town of Guasave on Mexico’s Pacific Coast in 1975. The first U.S. restaurant opened five years later on Alvarado Street in Los Angeles.
The company has changed hands several times since then. Trimaran purchased the chain from American Securities Capital Partners in November for about $400 million.
Expenses related to the purchase swung El Pollo Loco to a loss of $11.8 million in 2005 from a profit of $1.4 million in 2004. Revenue rose to $237.2 million in 2005 from $219 million in the prior year.
A typical El Pollo Loco does $1.6 million in business annually and collects an average check of $8.90, the company said.
