Investment firm buys 25% of NY Restaurant Group

Nation's Restaurant News, Jan 8, 1996 by Milford Prewitt

NEW YORK -- The New York Restaurant Group, parent of several of Manhattan's most acclaimed, high-end restaurants, sold almost a quarter of the company to an investment banking firm to finance a unique type of national expansion drive.

Alan Stillman, founder and president of the NYRG -- which includes Smith & Wollensky, Park Avenue Cafe and the Manhattan Ocean Club -- said the deal is a possible prelude to a public offering.

"I certainly hope so," Stillman said, when asked about the possibility of going public.

Stillman sold 23 percent of NYRG to the Thomas H. Lee Co., a Boston-based investment house that has directed a string of profitable initial public offerings after providing financing and consulting services to lesser-known, undercapitalized companies.

Among the firms Thomas H. Lee has taken public in the past few years are Snapple Beverages, now a division of Quaker Oats; the GNC nutrition store chain; and Ghiradelli Chocolates.

Stillman declined to disclose how much money his new equity partner invested in NYRG, but he said it is enough for him to initiate a national expansion drive "with a twist."

He plans to expand to as many as 10 different markets -- including one European city -- by opening three of his top-rated restaurants together in each city.

"No one in the high end of our business has ever attempted to do what I'm planning," Stillman said. "No one has put together a group of highend restaurants that can be expanded to other markets and provide the infrastructure and resources to make it work as a company.

"I know it's been done with fast food, and everybody did it with T.G.I. Friday's, which they ripped off from me," he said. "But this is the next step for the high-end market."

Stillman, who once sold essential oils to perfume manufacturers, created T.G.I. Friday's in 1965 on Manhattan's Upper East Side as a way to supplement his income. His moonlighting excursion changed the course of the casual-theme dining segment with a restaurant that would become one of the most imitated concepts of all time.

In addition to the Park Avenue Cafe, Manhattan Ocean Club and Smith Wollensky -- which the company owns with limited partners -- the NYRG also owns Cite and Mrs. Parks Cafe, and operates the Post House.

Stillman said the company has annualized sales of about $60 million.

Based on the critical acclaim and sales his portfolio of restaurants enjoys in New York, Stillman said the Park Avenue Cafe, which serves contemporary American cuisine, the seafood-based Manhattan Ocean Club and Smith Wollensky steak house are the three concepts that will form the vanguard of the expansion.

Park Avenue Cafe preceded its siblings when it opened in Chicago about a year ago.

Stillman said Cite, a French-American steak house, is "not a necessary element" to fulfill the companies ambitions.

Recognizing that Morton's of Chicago and Ruth's Chris Steak House are also premium-priced restaurants with aggressive expansion plans, Stillman nevertheless maintained that no other company competing in the pricey fine-dining market ever has attempted to bundle three distinct concepts together for growth.

"Morton's and Ruth's Chris are steak houses and only steak houses," he said. "We have a high-end seafood restaurant, a high-end steak house and a high-end American concept with three great names and solid reputations.

"We intend to go into new cities and not only perform as well or better than we do in New York, but we want each restaurant to be rated among the top 10 restaurants of each city."

Stillman said Washington, Philadelphia and New Orleans are the first cities that will become outposts for his fine-dining expansion.

"It's exactly because those cities have a sophisticated dining public that we chose them first," he said.

Gregory Miller, a spokesman for the Thomas Lee Co., said the deal with NYRG was the culmination of nearly two years of work on the part of both sides. He explained that NYRG possesses just the kind of traits and track record the investment company chooses to do business with.

"The Lee company always has been fond of investing in consumer-oriented companies that give consumers a new product that they want or need or which have a strong consumer brand name -- ideally, companies that have done both," he said. "The Lee company believes Stillman has achieved that in the high end of the restaurant business.

"What Stillman is going to do is reinvent the highend restaurant and take it on the road. Smith Wollensky, for example, is not popular because it happens to have a great location at 49th and Third Avenue. It's successful because you know when you go there you are at a serious steak house. The same with the Park Avenue Cafe. When you go there, you know something new is taking place with American cuisine."

Miller said the bank was not too concerned about the cities Stillman has targeted.

"Stillman is making a bet that these are cities with people who will appreciate, understand and value good food and what goes behind the implementation of the product," Miller said. "And if Friday's is any indication of what he's capable of, the Lee company is looking forward to a good partnership."