Tuesday, October 11, 2005
Big meals for a big land
An investment of up to $250 million lets Claim Jumper have the freedom to grow nationwide.

By TIFFANY MONTGOMERY
The Orange County Register

The owner and founder of Claim Jumper said Monday that he has sold a majority interest in his Irvine restaurant company to a Los Angeles investment group in a quest to expand nationwide.

Craig Nickoloff, who opened the first Claim Jumper in 1977 in Los Alamitos, did not want to give the exact purchase price, but said it ranged from $200 million to $250 million. He said that he will keep a “pretty good stake” in the company and that he and his management team will remain in place.

“It’s great,” Nickoloff said. “I’m looking forward to it. My dream of the company growing nationally will slowly evolve.”

Buyer Leonard Green & Partners has investments in a wide range of businesses, including floral company FTD Group, map company Rand McNally and drugstore chain Rite Aid.

Claim Jumper, famous for its large portions of comfort food, has 35 restaurants in five Western states with plans to expand into the Midwest. Previously, the company raised money for each new restaurant by forming limited partnerships and borrowing money. Nickoloff has said he wanted to spread some of that risk as the company moved forward.

Now Claim Jumper will have the capital in place and can grow more quickly. For the next several years, Claim Jumper plans to open about five restaurants a year, Nickoloff said. In January, the company will open its first Midwestern restaurant, in Lombard, Ill., near Chicago, and it has signed two other leases in the area.

Claim Jumper, with annual sales of $226 million, attracted a lot of interest from investors as it explored its financial alternatives, and eight groups placed bids, Nickoloff said.

It is the first investment that Leonard Green has made in a restaurant company in about 10 years, partner Tim Flynn said. His company was attracted to Claim Jumper because of its growth potential, affordable menu, quality food and proven management team, which built a large, profitable business from scratch, he said.

“We’ve looked at a lot of deals, but we thought that this was one that was unique and special and something to really go after hard,” Flynn said.

Claim Jumper has some of the highest sales volumes in the industry, averaging about $8 million a year at the last 10 restaurants it has opened.

By comparison, a typical casual-dining restaurant, including competitors Outback Steakhouse, Chili’s, Red Lobster and Applebee’s, averages about $2.5 to $4 million, according to Chicago restaurant-consulting firm Technomic Inc. The Cheesecake Factory is the industry leader, with $11 million to $12 million in average restaurant sales.

Leonard Green will not be involved in day-to-day operations of Claim Jumper, Flynn said, but will have a presence on the board of directors and provide oversight and guidance.

By choosing to sell to a private investment group, Claim Jumper has avoided the demands of going public and Wall Street’s emphasis on quarterly numbers – at least for now, Technomic President Ronald Paul said.

“Financial buyers are demanding in that they want high returns, but they are more patient,” he said. “It’s not being under the quarterly microscope.”

Ultimately, however, buyers want an exit strategy, which usually means selling to a larger company or going public, Paul said. Nickoloff acknowledged Monday that the company might eventually pursue an initial public offering.

While Claim Jumper is a strong concept, it still needs to prove that it will work in other regions, Paul said.

“It’s not the first casual chain out there,” he said. “There’s plenty of competition."