Chili yields hot 3x return for Nautic

Nautic Partners, the former Fleet Bank private equity arm, has sold restaurant chain Skyline Chili to Prudential Capital Partners, in a deal that locked in an IRR of 25 percent for the investment.

Rhode Island-based Nautic Partners locked in a 3.1x return on its investment in Skyline Chili, after the firm sold the restaurant group to Prudential Capital Partners in a secondary transaction. Terms of the deal were not disclosed, although based on the size of Nautic’s original investment, this latest transaction would have a valuation of under $100 million.

Nautic originally acquired Skyline Chili in a roughly $23 million public-to-private deal in April 1998, back when the firm was an affiliate of Fleet Financial Corp. Nautic invested alongside management, which rolled over a 10 percent stake in the business. While the company had been publicly held, the founding Lambrinides family had maintained a control stake in the business up until the Nautic acquisition.

Nautic invested roughly $10 million into the company, and did not make any follow-on investments during its holding period 

Skyline Chili specialises in “Cincinnati-style” chili, which differentiates itself from its Texas-style cousin in that it blends Greek spices into the traditional chili recipe and is often served atop spaghetti or hot dogs, according to Skyline marketing materials.

Nautic vice president Fraser Preston told PEO that the investment in Skyline came during “a difficult period” for the restaurant industry. Raw materials, such as beef and cheese, were at peak prices, and the market itself became increasingly competitive.

“We made up for it by growing the number of franchisees in the system, and the company also introduced a new product line, the low carb menu,” Preston said. He added that a fanatical dedication to the restaurant or a “unique degree of customer loyalty” helped the business succeed during the difficult stretch.

Skyline is based in Ohio and operates 135 franchised and company owned restaurants. Skyline currently has locations in Ohio, Indiana, Kentucky, Michigan and Florida, and also sells branded chili products in grocery stores.

Nautic, which is reportedly raising its sixth fund, realised an IRR of 25 percent on the sale of Skyline. The deal marks the second notable exit for the firm in the past 12 months, including its sale of Gans Communications last November, which brought the firm roughly two times its invested capital.

According to reports, Nautic is estimated to be seeking around $1.25 billion for Nautic Partners VI. Preston would not comment on the firm’s fundraising plans.