Grotech group buys A&W Restaurants

January 10, 1995|By David Conn | David Conn,Sun Staff Writer

Grotech Capital Group, a Timonium venture capital firm, expanded its push into the retailing sector yesterday, announcing it led a group that purchased A & W Restaurants, a chain of 700 fast-food restaurants around the world.

Grotech bought the Detroit-based company from the Taubman real estate organization, according to Stuart D. Frankel, a Grotech managing director. He confirmed that the sale was for about $20 million in cash. A & W has about $300 million in annual revenues.

The deal follows last month's $20 million acquisition by Grotech of a majority stake in Royal Optical from Westinghouse Credit Corp. Royal is one of the nation's three biggest optical retailers, with 800 mostly department store-based centers in 43 states and $115 million in sales.

"This is a new direction that we're moving in," Mr. Frankel said. Grotech invests in a blend of small, young companies, many in high-tech areas, as well as older, more established firms.

"The main difference now is that we have a much larger fund . . . and that gives us the ability to take larger positions," Mr. Frankel said. "The strategy's the same, but the size of the investment has changed."

Through its funds, Grotech has invested more than $200 million in companies primarily in the mid-Atlantic and southeastern regions. Its chief executive, Frank A. Adams, is among five managing directors who oversee the investments.

Grotech IV, the company's latest fund, closed in October with $126 million raised from investors, more than twice the size of its previous fund. So far, the firm has invested about $21 million of the most recent fund.

The A & W purchase was funded partly by Grotech IV and partly by other investors, including Sidney Feltenstein, a former executive at Dunkin Donuts and Burger King. Mr. Feltenstein is the new president of A & W, whose headquarters will remain in Detroit.

Together with the 1993 purchase of Brigham's, a Boston-based ice cream maker and retailer, the A & W deal brings Grotech firmly into the food business.

A & W's U.S. franchises are scattered throughout the West Coast, the Southwest and the Midwest. The company also has stores in Europe and Asia.

"Under its new ownership, A & W will seek to expand worldwide through master franchise operations throughout Asia, Europe and South America," Grotech said in a statement. "The company will also explore opportunities to purchase additional franchise companies in the U.S. with a goal of global expansion."

Along with Royal, the A & W purchase is among the largest stakes Grotech has taken in a company. Of the $75 million paid a few years ago by various investors for New York-based Plaid Holdings Corp., which owns the J. Schoeneman Inc. apparel maker in Owings Mills, Grotech's share was about $10 million, still its largest direct investment.

"Given the size of this new fund, we were looking for more and more restructures or opportunities to do buyouts of existing retail chains with management." said Grotech managing director Dennis J. Shaughnessy.

Those established companies, with more reliable cash flows, provide "a much more predictable return," he said.

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