Blue Sage Capital LP has gobbled up the privately held Mr. Gatti's Inc. pizza chain. Blue Sage of Austin purchased the pizza chain for an undisclosed mix of debt and equity from Kerrville-based holding company LDB Corp, which is owned by L.D. "Brink" Brinkman, who bought the chain in 1978. While the amount of the buyout was not disclosed, Jim McBride, a general partner with Blue Sage, says Mr. Gatti's operates about 150 stores in nine states, including 28 company stores and 122 franchises. The chain reports sales of more than $150 million. The corporate parent reports about $30 million in revenue from the company stores and franchisee royalty payments, while the remaining revenue stays with the franchisees. San Antonio-based Frost Bank provided the debt financing and Blue Sage provided all the equity. McBride was excited to involve a Texas bank in the deal and says this deal exemplifies Blue Sage's renewed Texas focus. "In many ways, this is a prototypical investment for us," McBride says. "It's Texas-based, family-owned and in need of a transition. You had a discriminating seller who wanted to ensure the company he had been involved in for 26 years was placed in good hands that he trusts. And the company is mature, it's profitable and has solid growth prospects" Blue Sage invests in established, profitable companies with $5 million to $100 million in revenue and $2 million to $8 million of cash flow at the time of investment. The firm has $170 million under management and raised part of the money from the federal government as a Small Business Investment Corporation. Despite the change in ownership, Gatti's president Don Brinkman, the son of L.D. Brinkman, will remain in the top spot. McBride and Bo Baskin, general partner of Blue Sage, will sit on the board. McBride says Blue Sage is also in talks with a former pizza executive regarding joining the board. L.D. Brinkman says he had thought about selling the company, but was concerned about finding the best buyer who would care about the customers and employees, as well as the chain's commitment to quality food. "I've enjoyed working with McBride and Blue Sage through the sale and look forward to being of any assistance if they need it," Brinkman says. "We have many longtime, loyal franchisees and employees and that was my main concern -- that their future would be improved by the sale. If I had not felt that, I would not have done it." After taking control of the chain, Blue Sage plans to continue growing the number of locations, especially those offering arcade games and games such as air hockey. McBride says that segment of the business offers the best profit margins.
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