Speed Was Key to Closing Gigi's Sale to FundCorp
Gina Butler is the founder of Gigi's Cupcakes in Nashville, which FundCorp purchased in June.
Who says cupcakes are dead, the rise and fall of Crumbs notwithstanding? Not FundCorp, the Texas private equity firm that bought Gigi’s Cupcakes from founder Gina Butler earlier this month.
The purchase brings Butler full circle, from aspiring country music singer and cleaning lady to the Nashville stars, to the launch of Gigi’s in 2008 with just $33 in her bank account, as chronicled in a Franchise Times cover story in January 2015. She will remain the face of the brand and spokeswoman, and will lead product development for the company. She will also retain ownership of the Nashville area Gigi’s Cupcakes and plans to pursue speaking and entertainment opportunities.
“I am so excited about FundCorp leading the way for Gigi’s Cupcakes,” she said in a statement. “We now have the opportunity to experience tremendous growth.”
Wallace Hite, managing partner of Reconstruction Partners and the deal’s investment banker, said FundCorp’s Jim Phillips wasn’t looking for a cupcake brand per se, nor even a food-and-beverage brand necessarily. But Hite had met Butler and company co-founder Alan Thompson years before, liked them and respected the brand they built to 100 stores with little outside investment, and kept in touch.
“I thought, maybe it’s time for Alan and Gina to look maybe to sell. I said, I don’t know if they would, but let me run it up their flagpole, and if they’re interested I think we’re going to have to move fast.”
Fast, because many founders don’t like the extra scrutiny and lengthy due diligence that most acquisitions entail. “Founders and their babies have a unique relationship,” Hite said. “If we don’t move fast, I think they’ll have a hard time getting through the emotional part of selling the company.” The deal took four months from query to close, a quick clip in M&A land.
Further complicating the deal was a recent equity investment in the brand by two Gigi’s franchisees. They were all “really lovely people and we had to find a way,” said Hite, who has a way with words. “Everybody wore a different size shoe, and we had to find a different shoe to fit everyone.”
FundCorp is a combination of two family offices, also known as family-backed investment funds that often buy real estate and other assets, which like other such investors are increasingly liking the franchise model. “You create income streams that have no capital basis in them,” Hite pointed out, meaning the franchisees, not the franchisors, put in the money to build stores, leading to a fast return on investment. “Cost of capital is as low as it’s been, but capital is still capital.”
Many have proclaimed the cupcake craze is long over, and the Wall Street Journal declared it dead in 2013. But Hite believes Gigi’s goes beyond the actual food product. “The gold star in Gina’s toothbrush chart is she built a brand,” Hite said. “It’s not just the name. It’s the synergies of the elements of the brand that make all the difference, particularly in franchising. Everything fits together nicely.”