"Giordano's hasn't really come close to realizing any of its potential outside of Chicagoland," Richard Levy, managing partner and founder of Victory Park Capital, said in his first interview after buying the Chicago-based restaurant company in a 15-hour auction conducted by a U.S. bankruptcy trustee.
The frozen pizza market, for example, is a "big opportunity," said Levy, 39. He also believes that Giordano's sauce rates shelf space.
Levy, who was raised in South Africa but has lived in Chicago for the past 16 years, said developers have expressed interest in turning Giordano's flagship eatery and headquarters at 730-40 N. Rush St. into a hotel, condominiums, apartments or parking garage.
"There aren't many opportunities like that left in the city, so we felt there was a lot of value there," Levy said of the role that property played in his firm's interest in Giordano's. "We're going to listen to people who come to us with business opportunities, but for now it's our flagship store."
Giordano's key market is the Chicago area, but it also has a small presence in Florida.
"Over time, we'd want to have a national expansion through company-owned stores and franchise opportunities," said Levy, who has a bachelor degree in political science from Ohio State University, a law degree from Chicago Kent Law School and a master's in business administration from the Illinois Institute of Technology.
Closer to home, he sees opportunities in Indiana, the Quad cities and even in parts of the Chicago area.
"Wrigleyville is an interesting opportunity," Levy said. "We do have a store on Belmont, but something at Wrigley Field would be a neat location, with one Chicago icon staring at another Chicago icon."
He hasn't set a timetable for geographic expansion.
"First, we need to stabilize the business and make sure our franchisees are happy," Levy said. The deal marks Victory's first investment in its backyard.
Victory was founded in 2007 by three former colleagues, all in their 30s, who previously worked at Evanston-based hedge fund Magnetar. Victory outbid a dozen others to snag Giordano's, which had filed for bankruptcy in February and was auctioned off last week to pay creditors.
Chester Foster, a lawyer who represented a group of franchisees that wanted to buy Giordano's restaurant assets, said it's "too early" to assess the new buyer. But "they seem like an OK group," Foster said. "Hopefully, everything will be successful for everybody."
Levy also sees opportunity for Giordano's in the frozen food aisles of grocery stores.
"We've investigated it as part of our due diligence" into the Giordano's purchase, he said. "We've spoken to people who could be distributors and people who understand the grocery store channel."
They've also done research into the pricing and quality-control aspects of frozen food in grocery aisles, he said.
Frozen pizza has plenty of competition. At least three other Chicago-area pizza chains are in grocery stores. Home Run Inn is a considerable player in that channel. Frozen products of Gino's East and Connie's can also be found in Jewel stores.
Frozen pizza sales nationwide climbed for four straight years from 2005 to 2009, but dipped 0.9 percent in 2010, to $4.7 billion, according to Mintel Group Ltd. The consumer-products research firm theorized that consumers were feeling better about the economy last year and decided to, for example, get pizza takeout or delivery. But Mintel said it expects frozen pizza sales growth to resume at about 4 percent annually from 2011 to 2015.
Levy said Giordano's restaurant menu offerings will be reviewed but ingredients won't be changed. Potential changes include improving the offering of craft beers.
"We've talked briefly about adding a beer garden theme to the Rush Street location, subject to permitting and city approvals," Levy said.
Victory paid $51.6 million for Giordano's restaurant operations, as well as real estate that includes the Rush street location. The firm typically makes investments of $10 million to $50 million. It paid for Giordano's with proceeds from the second private equity fund it raised, which yielded $480 million from investors.
Other stakeholders in its Giordano's group include George and Basil Apostolou. The two men are Giordano's franchisees and sons of the couple who owned the chain when it went bankrupt, due mostly to bad real estate investments.
Their father, John Apostolou, had to relinquish control of his longtime restaurant business in May after he fired his bankruptcy attorney and struck up a relationship with an Arizona man who filed a claim against Giordano's that the bankruptcy trustee believed was fraudulent.
Levy said Victory plans to hire an operations executive to lead Giordano's, which has annual sales of about $45 million.
"We'll supplement existing management and the know-how of the Apostolou boys with some outside experts," Levy said.
The Apostolou sons will be minority investors in Giordano's restaurant holdings.
Levy said the sons' counsel was "very valuable" as his firm prepared its bid.
"They grew up in their father's business," Levy said. "They know everything about" its commissary, employees and distributors. Their profitable franchises, one at 130 E. Randolph and another at 223 W. Jackson, will now be company-owned stores.
Their father, a Greek immigrant, won't be a shareholder in the post-bankruptcy Giordano's.
But "we met with John Apostolou, and our take-away was this guy had the American dream," Levy said. "Unfortunately for him, he invested in real estate at a bad time, and he's in good company."
John Apostolou won't have an official role "but I'm going to call him up one day if I need to know about," say, a vendor, Levy said. "He's going to be a great resource for us."
Victory has purchased other troubled companies. Earlier this year, it bought most of the assets of Gulfstream International Airlines Inc. out of bankruptcy court. Based in Fort Lauderdale, Fla., Gulfstream has more than 125 flights a day.
Levy is also chairman of publicly traded Unigene Laboratories Inc. Victory had provided Unigene with new capital during the New Jersey-based drugmaker's 2010 debt restructuring. This month, Unigene appointed Walgreen Co. general counsel Thomas Sabatino to its board. Previously, Sabatino had been general counsel with United Airlines Inc.
More than 20 employees work directly for Victory, whose portfolio companies employ about 3,000, Levy estimates. His partners and firm co-founders are Matthew Ray and Brendan Carroll.
When private equity firms buy a business, they often have an exit strategy in mind. Its investors expect them to buy low and sell high.
"In two or three years, we'll look up and see how well we've executed on our plans," Levy said of Giordano's. But "we're very comfortable holding things for four or five years."
byerak@tribune.com
Twitter @beckyyerak
Copyright © 2011, Chicago Tribune
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