Blimpie Taken Private By Buyout Group

Following the trend toward public restaurant companies going private, Blimpie International Inc., the country’s No. 2 submarine sandwich chain, has agreed to be acquired by a private investor group for $25.8 million in cash. The buyout group is headed by Jeffrey Endervelt, a Blimpie sub-franchiser based in southern California. Blimpie is second in size to the Subway sandwich chain, which is privately held. For fiscal year ended June 2001, New York-based Blimpie had sales of $30.7 million. Founded in 1964, Blimpie in recent years has opened outlets in nontraditional locations, such as convenience stores, hospitals, and sports arenas. Moving into nontraditional markets has been a good strategy for Blimpie, says James Cassel, founder and president of Capitalink, a Coral Gables, Fla.-based investment banking firm which advised on the transaction. “Operating in traditional locations, such as in a mall or a stand-alone store, has certain costs and traffic requirements attached to it,” he notes. The nontraditional outlets offer good traffic, and the cost of running those operations is less than for running traditional stores because the real estate costs aren’t as high, he says. He adds that Blimpie has also done well with its “grab and go” strategy, where a refrigerated case stocked with freshly made products is placed in a hospital or other institutional food setting. Endervelt notes that his group is interested in growing the Blimpie brand. “We are interested in growth. In my opinion, the business has been under-mined, that is, it has not fully reaped the benefits that I think it can get.” And while most Blimpie stores are in traditional locations, he says that his group does not favor traditional over nontraditional locations. There are plenty of nontraditional locations available that are “always looking to enhance their services as well as locations for traditional stores,” he states. Blimpie had already started branching out on its own by developing new brands, including Pasta Central, Smoothie Island, and Maui Taco, which features a mixture of Mexican entrees and Hawaiian spices. “Each of those young brands has the ability to be expanded. Blimpie operates in the quick-service sector, and while there is great competition in that market, there is also good growth potential,” says Cassel. A number of restaurant companies have gone private in recent years, including VICORP Restaurants Inc., Taco Cabana Inc., and Uno Restaurant Corp., and several more going-private deals appear to be in the works for companies including Quizno’s Corp. and Gaucho Grill. One of the main reasons for this, says Cassel, is that the public markets are not rewarding these companies for their intrinsic value or continuing growth. “A lot of restaurant companies have good, sustainable cash flows, which gives them the ability to leverage or borrow money. There is growth potential in certain areas of the industry, and equity sponsors are interested in putting capital in. The public companies are typically undervalued. A lot of the ones we’ve been looking at that are going private are small-cap companies that are not getting sponsorship in the public arena from institutional investors,” he says.