Darden group sold Red Lobster to GGC because it was massively underperforming in it's portfolio due to mismanagement through the 90s. GGC wasn't able to make much headway with it, and so it sold 25% to a vendor on the supply chain as part of debt restructuring and forgiveness, that allowed them to get some unit economics back into reality and the owner of the supply chain company took the rest of the position to continue the work of re-building the supply chain. Should the PE firm have involved the vendors in that way, maybe not, however it seems it was a decent enough strategy in terms of thoughtfulness.
Red Lobster had a death rattle long before PE got involved, PE is just a convenient story.
McDonald's, a non-failing firm, not owned by PE, was once described by a former CFO thusly: "We are not technically in the food business. We are in the real estate business." They realised that owning the land upon which their restaurants, allowed them to succeed.
Red Lobster's PE firm, on the other hand, did the exact opposite: sold the most valuable asset out from under their restaraunts, to another PE firm, which then squeezed the restaraunts on rent and ruined their store economics (along with the aforementioned supplier further ruining their unit economics) until they went out of business.
They're in Chapter 11, they're not out of business yet.
Why do you think that is what happened? It doesn't seem to be in line with what GGC told their LPs, so I'm curious where you get your interpretation of the events from? Do you have any links or reading you could provide me with?
The reason I think that is what happened is because that is what happened. Here are some links, as requested:
How a bad real estate deal sunk Red Lobster [0]
When a private-equity firm bought the iconic seafood chain in 2014, it sold the real estate under the restaurants for $1.5 billion. Then the restaurants struggled to pay the rents [1]
It Was A Bad Real Estate Deal, Not A Bad Meal Deal That Killed Red Lobster [2]
Ultimate Endless Real Estate Costs at Red Lobster [3]
Golden Gate crippled Red Lobster by selling off one of its most valuable assets, the real estate it owned [4]
To help fund the deal, Red Lobster spun off its real estate assets in a transaction known as a sale leaseback agreement. Red Lobster had long owned its own real estate but would now be paying rent to lease its restaurants. Sale leasebacks are very common in the restaurant industry, but the arrangement wound up hurting Red Lobster because it became stuck with leases it no longer could afford to pay. [5]
But again, it wasn’t because of the shrimp. Following the sale of Red Lobster to Golden Gate, the chain’s real estate assets were also sold off, which meant that the restaurants now had to pay rent on these locations to their parent company. As such, the company was stuck in leases for underperforming restaurants that it couldn’t afford [6]
The vendor wouldn't have been able to afford the price of the business with the land in the deal, it would have massively complicated chapter 11 if they needed to enter it (they did), given were the company was, reducing tax burden was important (sale was done at near breakeven). Sale+Rent back is a very traditional move in clearing up a business that has very little value and is leaning heavily on a real estate portfolio (not it's core business). You can read all the court filings and disclosures over the years, it paints a different story.
I understand the media told a story, but the story isn't the whole story, in fact it's just that: a story.
The 6 reliable sources provided, which I trust you read in the 30 minutes between their posting and your reply, speak for themselves.
If you can convince all 6 reliable sources I linked, to correct their story, such that it reflects your own personal narrative of what happened, I will believe you.
Alternatively, you could provide 6+ equally-reliable sources which explicitly point out that the 6 reliable sources I cited are wrong (rather than just reframing the issue, or attempting to predict what would have happened had reality been different than what it was).
While I respect you as a person, and as a valuable contributor to this forum, your personal narrative simply isn't as reliable as the 6 reliable sources I provided.
Darden had a very interesting pitch to GGC, going so far as to secure covenants from franchisees holders in advance to sale+leaseback - GGC in spite of S+LB, obligations, the in fact bought millions more in real estate to try and shore up the stability in locations.
It seems we're in violent agreement: The sources you provided don't actually dispute the ones I did: indeed, they confirm that the real estate was sold out from under the restaurants. To further cement this point, your last link flat out says what we're all already saying: Private Equity can't/didn't save Red Lobster.
This action further distressed individual restaurants, rather than helping them out.
Instead, the sources you provided instead simply say that it was advantageous for Private Equity and the Private Equity deal, which is the point here: it was good for PE, bad for the individual restaurants.
Which makes sense, it's not a complicated concept: how does jacking up rent on an individual restaurants help it? It doesn't, as the sources I provided pointed out. If you were paying X today, and now you have to pay >X, that doesn't help you.
Why was it worse for the restaurants than the alternative?
Why was the rent increased, by how much, and by who?? What was the difference between the payments and how much did it diff from market over time or at whatever time you're talking about.
I'm an LP in GGC so I have lots of thoughts, happy to hear yours in detail!
By how much? By enough to hurt the restaraunts. I'd be happy to hear from you the specifics of how much it was increased, per-restaurant, if that's what you're referring to.
Was it worse for the individual restaraunts than not jacking up the rent? Yes, paying more is worse than paying less.
Was it worse than not being bought out by PE? Probably, but that's the sort of prophesizing about what would have happened had reality been different, in which I'm not interested in participating. What we do know is that a lot of value was extracted from Red Lobster into the pockets of PE, leaving the company a withered husk of its former self, a common PE playbook.
It's not prophesying given we have additional facts we could include to play out the alternative (socioeconomics)- if you wanted to engage from a place of intellectual honesty, that is.
"Playing out an alternative future" is "prophesizing" with more words, and prophets always claim to have some basis to predict the future, but nobody can. That's why I'm not interested in prophesizing about what might have happened had reality been different.
You mentioned rent costs, though: I'm happy to hear the rent costs before vs. after private equity sold the land out from under the restaraunts – it sounded like you were saying you're in a position to access those numbers? Given your excellent posting history, I trust that you want to engage from a place of intellectual honesty in that regard.
As it stands now, all we know is that, post private equity, they were jacked up so much that the stores struggled to pay. So how much was it exactly?
That's a fair bit of revisionist history trying to make PE look like it's not the bad guy.
Red Lobster was flourishing in the 1990s; it was one of the most popular sit-down chains back then. There were lines around the block at most locations.
In 2013, Darden Restaurants decided to spin-off Red Lobster and Olive Garden by selling them to a PE firm which coveted the ability to exploit these profitable chains. (Average EPS was approximately $0.77/share, and Red Lobster remained the countries' most popular seafood chain until COVID.)
The sale to the PE firm GGC included a sale-leaseback of all of Red Lobster's real estate. The purpose of this was to fund the acquisition, since PE never puts its own money down; it funds acquisitions with the assets of the acquired company. Red Lobster's operating expenses jumped more than 50% overnight, as it now had to pay rent on locations it used to own.
Within 2 years, this PE-driven cash grab had Red Lobster on the verge of bankruptcy. Selling Red Lobster to its biggest supplier didn't fix things because the problem was that PE had the bright idea to ruin the company through the sale-leaseback arrangement.
PE was not just a convenient story, they are the cause for Red Lobster's demise.
A lot of the time, private equity (like MBAs etc.) is a convenient bogeyman for why crappy underperforming companies are crappy and underperforming. But private equity often gets involved because they are crappy and underperforming (or are just in a line of business that doesn't have good prospects any longer).
A small fraction of the time, private equity is brought in to make an ailing, breakeven business profitable.
Much more often, it's to bite off limbs until it dies, feasting on cashflow and assets.
And then the third portion of the time, the business is generating reliable, modest long-term returns, a "blue-chip" company. Private equity doubles down on future growth that is not projected, gets the company into debt to the owners, makes it worthless, compensate themselves in stock with bank leverage, issues themselves further priority stock, files bankruptcy to get rid of the pensions, and on, and on, and on with various tricks to sack whatever assets the have on their books and whatever cashflow was generating a reliable 5% return before private equity got involved.
Eastman Kodak is a good example. Fujifilm arguably sort of came out the other side but much smaller company in much different country.
B&M retail, especially in the traditional department store sense, is much reduced. Could Sears have become Amazon (presumably including AWS)? I guess. Would anyone to a first approximation who was employed at Sears still be there? Probably not. Would Sears as it existed have brought any particular assets or expertise to the table? Probably not.
At some point, reinvention is sort of pointless because it means bringing along a lot of baggage that has net negative value.
Red Lobster had a death rattle long before PE got involved, PE is just a convenient story.