Nick Mazing, Ampera Capital: Do you see the gold in the Golden Arches?
Editor’s note: Below is a brief intro about the fund, a portion about ARCO and then a link to the full article.
Amid the turmoil in the public markets and the staggering macroeconomic environment, it should come as no surprise that the private markets are also struggling. In fact, there are some important links between private equity and the current economic environment. A closer look at PE reveals that the industry often serves as a leading indicator Read More
Ampera Capital is an emerging NY-based Long/Short manager that focuses on consumer equities. The founder is former consumer banker at Lehman and operator at Aramark. Ampera has established a long position in Arcos Dorados Holding Inc (NYSE:ARCO). ARCO is the master franchisee for McDonald’s Corporation (NYSE:MCD) in Latin America. Some thoughts below.
Unit-based investment model primer
Q: What is a “unit-based” model?
A: It is a business where the primary value generation occurs in standardized, replicable units. Examples:
- “Stretch examples”: revenue-generating managing directors at boutique investment banks (ieGHL), cosmetic sales reps (ieAVP), independent distributors (ieHLF though questions persist about this specific co.)
Q: Why do we care about units?
A: Units provide relatively predictable performance and scale
- An idealized unit-based business model follows
- 100-unit business grows units at 5% and same-store sales at 3%
- Modest store margin improvement of 0.5%/yr and SG&A growth with units
- In 10 years, sales are up 97%, EBIT is up 311% (remember this)
Arcos Dorados Information: Historical Narrative
Arcos Dorados Holding Inc (NYSE:ARCO) was formed in 2007 when Woods Staton, the Argentina partner of McDonald’s Corporation (NYSE:MCD) for 20 years, became the master franchisee of McDonalds for most of LatAmand the Caribbean. As a Master Franchisee, Arcos Dorados both operates AND sub-franchises locations (mix has been steady, as of 12/31/12, 1,538 operated and 524 sub-franchised). CEO Woods Statonis a multi-generational LatAmbusinessman whose family owned Panamerican Beverages, a Coca-Cola bottler, acquired by Coca-Cola FEMSA in 2003 for $3.6 bnEV.
CEO Woods Statonretains voting control and substantial economic interest in the company (~40%). Q1 personal purchases of Arcos Dorados Holding Inc (NYSE:ARCO). COO and CFO have been with the company for years. Arcos Dorados Holding Inc (NYSE:ARCO) went public in April 2011 with bulge bracket underwriters in New York. The timing could not have been better: almost every Lat Am market peaked in April 2011, as seen in ILF, the iShares S&P Latin America 40 Index (ETF) (NYSEARCA:ILF).
Arcos Dorados: Do You See The Gold In The Golden Arches? full article via Harvest