The Carlyle Group's Sweet Deal
A neglected Dunkin' Donuts gets the touchy-feely treatment
Dan D'Aniello was all ears in 2005 when Jon Luther, CEO of Dunkin' Brands, called and said he was looking for somebody to buy his company. The parent company of Dunkin' Donuts had long been part of the British conglomerate Allied Domecq, which had just been purchased by French spirits company Pernod Ricard. The new beverage titan planned to focus strictly on its core business, and coffee and doughnuts didn't fit.
D'Aniello, a cofounder of Washington, D.C.'s Carlyle Group, had known Luther for years. Both had been rising stars at Marriott in the 1980s. Luther had earned plaudits for turning around the Popeyes fried-chicken chain in the late '90s. D'Aniello jumped into action.
He called principals at two other private-equity firms, Thomas H. Lee Partners and Bain Capital, who agreed to invest equally with Carlyle and share the risk. The consortium tried to make a fast deal with Pernod but was told it would have to participate in a formal auction. Several other bidders emerged, and the Carlyle team raised its offer at least once. Finally, last December, the Carlyle consortium won its prize, for $2.4 billion.
Carlyle execs say the Dunkin' deal highlights how private money can empower management, open new doors, and help overcome the neglect some businesses suffer from distracted corporate parents-all reasons an increasing number of CEOs have been seeking private buyouts. "Dunkin' had had spotty experiences," D'Aniello says. "The brand was becoming tired. Because Allied Domecq was not investing, there was an opportunity to grow the business."
Unlike some buyout targets, Dunkin' was not a troubled company with assets that could be readily carved up and sold. It didn't come cheap, either-the purchase price reflected an expectation of considerable future growth. What lured the buyers was a strong management team, a predictable flow of revenue from franchise fees, and bright growth prospects beyond Dunkin's home turf in the eastern United States, where most of its 7,100 worldwide stores are clustered. "If one thing sums up the opportunity," D'Aniello explains, "it's that 80 percent of our revenue comes from the geography between Boston and D.C."
Raising the bar. Once the deal was finalized in March, Luther and his new partners began pouring a fresh strategy for Dunkin'. A new 11-person board was formed, with three slots going to each of the private-equity owners. Luther and Chief Operating Officer Will Kussell, who each invested some of their own money in the deal, took the other two seats. Luther began to raise standards for franchisees, hunting for business people capable of handling a network of three to five stores, not just one or two. The team raised growth targets, too. Instead of adding 500 to 600 new stores per year-Allied Domecq's goal-Dunkin' now aims for 800 to 1,000. And Luther has decided to put the Togo's sandwich-shop chain on the block and focus squarely on coffee and doughnuts, along with ice cream sold by the company's other brand, Baskin-Robbins.
Luther is also challenging some cherished traditions. To boost efficiency, the company may outsource doughnut making at some stores. And it's exploring ways to draw more diners for lunch, without souring them on breakfast.
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