Dunkin’ backers oppose flip

The large end of the private equity market has seen a return of the quick flip during the past few years. Investors carve out a business, put a financial reporting infrastructure in place, and then float the new company in a matter of months, reaping a significant reward in the process. That will not be the strategy for Dunkin’ Donuts, as its new private equity owners are approaching the company as a growth story and employing a long-term mindset.

Dunkin’ Donuts’ new investors insist the property won’t be flipped.

Canton, Massachusetts-based Dunkin’ Donuts had been in play since French drinks giant Pernod Ricard had set its sights on its parent, Allied Domecq, a courtship that began this past spring. Following Pernod’s $14.2 billion acquisition of Allied, yesterday’s $2.43 billion (€2.03 billion) sale of Dunkin Brands puts the doughnut chain under the control of Bain Capital, The Carlyle Group and Thomas H. Lee Partners.

All three have flipped investments in the past couple of years. Carlyle was part of a group that acquired satellite company PanAmSat and four months later filed to take the business public; and both Bain and Thomas H. Lee participated in the buyout of Warner Music Group, which was acquired in March 2004, and filed for an IPO just 12 months later.

But Anthony DiNovi, a co-president at Thomas H. Lee Partners insists that the buying group won’t be looking to do the same with Dunkin’ Donuts. While he conceded that the group hasn’t established its exit route at this point in time, DiNovi stated definitively, “This is not about the quick flip at all”.

He added, “[This] is an investment for the long term. There’s at least ten years of growth potential for this company”.

The investors are backing company’s current management, headed by chief executive Jon Luther. As part of the purchase, the private equity consortium will also take control of the Baskin Robbins ice cream shop chain and the Togo’s sandwich franchise, in addition to the Dunkin’ Donuts brand, which is the jewel of the acquisition.

To drive growth, DiNovi noted that the investor group will oversee a continued penetration of the franchises into new markets, with new product introductions in existing stores also boosting the revenues. And while Dunkin’ Donuts is the primary brand, DiNovi believes that Baskin Robbins’ continued expansion and the still nascent Togo’s franchise each represent potential growth drivers as well.

The investors are splitting the equity commitment, a sum of roughly $1.1 billion, equally, while JPMorgan Securities is one of five debt providers (the identities of the other four have not been disclosed).

Ropes & Gray served as legal counsel to the buyers, while Debevoise & Plimpton served in the same capacity to Pernod.