The Sour Tale of Friendly’s
Disappearing into the gullet of insolvency is Friendly’s Ice Cream — the one-time family dining favorite and classic American ice cream chain — brought down by the financial wizardry of private equity (PE) firms. With its latest tour through the bankruptcy court in 2020, the franchise couldn’t save the 130 remaining stores. Nor did it spare the untold number of workers who found their livelihoods in the scoop shop.
The Historical Scoop
Begun in 1935, Friendly’s (wildly popular for its milkshakes and SuperMelts) nurtured a family-friendly vibe and became a neighborhood tradition across the Northeast. The Prestley Blake and Curtis Blake brothers built the brand diligently but the early 2000s saw the chain grapple with competition and debt.
Enter the Private Equity Flurry
In 2007, private equity firm Sun Capital Partners swooped in, promising to whip the cream and see the brand to new heights. Here’s a dish of how that indulgence fizzled out.
Death by a Thousand Cuts
Sun Capital, known for their expertise in distressed buyouts, bought Friendly’s for approximately $337 million. However, their efforts to improve operational efficiency and revitalize the franchise’s stale image saw the brand take on more debt.
The Debt Topper
By 2011, Friendly’s had declared bankruptcy and closed 63 stores overnight, leaving approximately 1,200 employees without warning, or severance pay, for that matter. The bankruptcy plan was hinged on reducing Friendly’s $296 million debt and Sun Capital used a ‘credit bid’ technique to maintain control. This allowed the PE firm to swap Friendly’s debt, owed to it, for equity in the company, effectively wiping out previous shareholders.
Mismanagement and Rapid Decline
Post-bankruptcy, attempts to modernize — including menu redesigns and mobile ordering — fell flat. Cost-cutting resulted in cuts to staff hours, impacting service quality, and customer visitation declined. The second and final blow dealt by Sun Capital was the production of cheaper, lower quality ice cream in an attempt to significantly debilitate the brand.
Friendly’s VS The Private Equity Freeze
The financial manipulation didn’t end there. Friendly’s real estate, worth $71.7million, was sold and a leaseback agreement initiated — a common tactic among cash-strapped PE portfolio companies. This left Friendly’s to cover rent costs while making little headway on its debt.
Chapter 22 Bankruptcy
In November 2020, Friendly’s declared bankruptcy ─ again. This time, Amici Partners, a group of restaurant investors, bought Friendly’s assets for merely $1.9 million. The once beloved brand ended its dance with private equity, but not without leaving scars on the face of American retail.
One Cone Too Many: The Takeaways
The story of Friendly’s is a case study in private equity’s short-term strategy — rack up debt, cut costs, and sell precious assets to meet financial obligations. The focus pivoted from delivering a valuable service and products to satisfying debt and restricting cash. This approach systematically stripped Friendly’s of what made it unique.
The Friendly’s debacle, like Toys R Us, Sears, and countless other American retail icons, showcases the true cost of financial engineering in the hands of PE firms. It’s a cautionary tale that demands reflection on the purpose and practices of private equity in the retail landscape.