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When Phil Friedman stepped down as CEO of McAlister’s Deli, a sandwich concept based in Ridgeland, Mississippi, that he grew from 30 to almost 300 locations during his 11-year tenure, many of his friends and colleagues assumed the 65-year-old industry veteran had retired.
“Most of the people were asking, ‘How’s retirement?’” Friedman says. “I’m not retired.”
In fact, only a few months after he left McAlister’s, Friedman formed an acquisition company called Mississippi Restaurant Group and recruited Barry Canada—“the leading merger and acquisition guy in the South,” Friedman says—to help him find an emerging chain to buy.
Friedman was looking for a concept that was in a similar stage of its evolution as McAlister’s was when he took the helm there, but this time around he didn’t want to answer to anyone else.
“I wanted to be the principal, a major investor, have it be my company that was the acquisition company, versus going to work for other people,” Friedman says.
“I did have some offers to go work for some private companies, some big, some small. But I didn’t want to report to the board, I wanted to be the company.”
This desire to do it his way led Friedman to fund the acquisition search with his own money. Rather than raising a fund, he lined up investors who were interested in backing an acquisition once Friedman found a worthy restaurant chain.
“I had the good fortune, because of the success of McAlister’s, to [fund] it myself,” Friedman says. “It was really important to me to do it that way.”
A “big step in the march to Salsarita’s,” Friedman says, was attending the Restaurant Finance & Development Conference, which was held in Las Vegas in early November. It gave Friedman an opportunity to reintroduce himself to small-company investment bankers, including Carty Davis of Cypress Group.
At the time of the conference, Friedman was looking “pretty hard” at two other companies, both founder-owned, full-service concepts geared toward family dining. But when Davis presented him with the opportunity to acquire Salsarita’s, Friedman shifted his focus.
In Salsarita’s, a fast-casual, build-your-own burrito concept based in the Southeast, Friedman says he found his “prototype acquisition.” It’s a young company that was established in several markets but seemed to need the guidance of experience to reach its potential. Furthermore, the relatively young chain was still owned by its founder, Bruce Willette, a prerequisite for any company Friedman would consider acquiring.
This stipulation also had to do with Friedman’s desire to be his own boss.
“I like more of the raw concept that is ready to be managed than something that has been worked over,” Friedman says.
Salsarita’s had hired Cypress Group to find a buyer, and in the first round of bidding, Friedman was disappointed to come up short. (A group including Real Mex Restaurants CEO David Goronkin and Fortress Investment Group’s Joel Holsinger had bid $6 million, according to Restaurant Finance Monitor.) He felt he had lost a brand that matched the skills he had honed for more than 30 years in the restaurant industry, a brand that in many ways resembled McAlister’s back in 1999, when he became chief executive.
“At that time, [McAlister’s] had grown substantially, had franchised substantially, but the organization strains were getting to a point where the company could implode, because growth also requires a lot of work,” Friedman says.
What was needed, Friedman says, was “organization development, structure, and leadership.”
The same was true, in Friedman’s assessment, of Salsarita’s when he first made a bid for the company.
Founded in 2000, Charlotte, North Carolina–based Salsarita’s was in its 10th year, as was McAlister’s back in 1999, and had locations in 19 states, with most of its 82 locations concentrated in the Southeastern region of the country.
Friedman is quick to concede the complexity of the restaurant industry—“every business is a collection of details,” he says—and he operates under the motto that “all businesses have their own physics.” Still, with its similarities to McAlister’s and positioning in the vibrant category of fast-casual Mexican, Salsarita’s seemed to him to be the perfect chain for his next venture.
Needless to say, he was happy when he got another chance to buy the company.
“We jumped on it,” says Friedman, who would not reveal how much his company paid. “Let’s just say this is not an acquisition that is going to break any records.”
In the lead-up to taking over Salsarita’s, Friedman contacted Larry Reinstein, himself an industry veteran who, with his brother, had founded Fresh City, a chain of eateries based in Needham, Massachusetts. Like Friedman, Reinstein was looking for a new start in the restaurant business.
“I came to a point in the road where I wanted to move on and do different things,” Reinstein says.
“My brother and I were able to make a deal with the investment team [at Fresh Concepts, the parent company of Fresh City], and I was able to move on to the next venture, which I’m happy to do.”
Having grown up in the industry, Reinstein says, “it was just the right time to do something different. I really wanted to get on a national platform.”
After Friedman left McAlister’s, he and Reinstein had many discussions about combining powers. The two men had met years before and shared a love for the restaurant business and a sense of what it takes to cultivate a successful concept.
“We got along well from the beginning,” Reinstein says. “Phil represents a lot of what I think I represent: integrity, hard work, strong effort, passion for people and for products and for building great brands.”