The Mexican limited-service space might seem overcrowded with concepts, both old and new, but Levy Acquisition Corp. thought the category could still stand for some saturation.
On Tuesday, the acquisition company that had been seeking a restaurant partner completed its merger with Del Taco. According to The Wall Street Journal, Levy valued the Southern, California–based chain at $500 million. Beyond significantly reducing Del Taco’s debt, the merger also paves the way for a more aggressive approach to expansion.
“Today for us is a milestone day on the company side. Going public really helps bring credibility. … Now we have the financial structure and the experienced team that can not only get it done but get it done in a great fashion,” says Del Taco CEO Paul Murphy. What has largely been an iconic regional brand can now be taken to new heights as a national player, he adds.
Larry Levy, CEO of the acquisition firm, which will be rebranded as Del Taco Restaurants Inc., is no stranger to foodservice. The restaurateur cofounded Levy Restaurants group with his brother in the late 1970s and remains board chairman to this day. Levy says that the Mexican category is growing twice as fast as the rest of the industry, and Del Taco established a noticeable credibility with its Unfreshing Believable campaign.
“We were looking for a brand with a great history that has reconstituted itself in a way that has resonated with consumers. They have the highest same store-sales growth that I’ve heard,” Levy says.
He adds that the gap between giants Taco Bell and Chipotle leaves plenty of turf for Del Taco to flourish; the brand delivers higher quality than Taco Bell but for a lower price point than Chipotle.
Beyond increased capital, the combined company will have new resources in the form an experienced management team.
“We have a strong management team here that has a good strategy and have been very effective at executing it and doing a good job, but Larry and his team are bringing some experience, bringing relationships that I think are going to help us move further faster,” Murphy says. In the past, Del Taco has worked with private equity firms that were lacking restaurant experience, he adds, but the new board of directors is well entrenched in the industry.
Under its original structure, Del Taco was “capital-challenged,” Murphy says, noting that it would take 18 months to open a single store.
Now, with a fresh infusion of cash and an experienced management team on hand, the predominantly West Coast brand can set its sights on new horizons and increase penetration in existing markets.
“It’s now about getting the company ready and getting the pipeline established,” Murphy says.
By Nicole Duncan