Tropical Smoothie Cafe: Case Study

Franchise businesses can successfully climb the PE Profit Ladder and thrive across multiple changes in ownership. Positive brand outcomes across multiple PE owners are created through (1) following franchise best practices, (2) maintaining focus on unit profitability, (3) driving organic growth, and (4) attending to the franchisee relationship and satisfaction. As the saying goes, “franchising is simple as long as franchisees are happy and making money.”

The history of Tropical Smoothie Cafe’s (TSC) involvement with private equity owners serves as an example of this success formula. TSC was founded (under a different name) in 1997, and the first franchisee location opened in 1998. The business was rebranded to the now well-known name in 1999. By 2006, TSC had 200 cafés open, and by mid-2012, the system grew to 315 units. Average unit volumes at the time were $526,000, up 5 percent from the prior year1. As a consultant, I would summarize their history to this point by saying TSC had impressive unit growth as an independent brand, but with average unit revenues of only $526,000 in a concept that also requires the fixed expenses of brick-and-mortar locations, there was likely profitability pressure on franchisees, especially underperformers.

In August 2012, BIP Opportunities Fund LP invested $10 million to acquire a controlling interest in the company, and 10 Point Capital joined as a minority partner.2 With this new capital and strategic expertise, TSC invested in menu innovations and marketing to grow both units and same-store sales. For example, the company added vegetables to its smoothies, a pioneering move according to Business Wire coverage at the time. (Now I know the origins of my own favorite TSC smoothie with spinach and kale.) The company also expanded its menu, doubled its marketing fund, and launched its first national television advertising campaign in March 2014.3 TSC continued to grow under private equity ownership. It had 400+ cafés open by the end of 2014, 500+ by 2016, 600+ by 2017, 700+ by 2018, and 800+ by 2019.

In September 2020, Levine Leichtman Capital Partners, in partnership with management, bought the company when TSC had 870 units open and 500 more in development.4 As previously mentioned, LLCP has deep expertise in acquiring larger franchise brands with still significant growth potential and scaling those businesses. The firm saw substantial room for TSC’s growth, both domestically and overseas. In press coverage at the time of the acquisition, LLCP said, “The firm [LLCP] offers a structured equity approach in which the company invests a combination of equity and debt and doesn’t over leverage the business… to ensure that Tropical Smoothie has the capital it needs to continue to expand.”5 Details of the deal were not disclosed at the time, but according to TSC’s 2022 franchise disclosure document,6 TSC was acquired by LLCP for $623.9 million, of which $242.3 million was debt. At 38 percent, this is indeed a modest amount of leverage by private equity standards.7

It should be pointed out that through these rounds of PE ownership, TSC average unit volumes continued to increase, and franchisees appeared to do well overall. Average unit volumes grew from $526,000 in 2012 when BIP and 10 Point acquired the company to $836,218 at the time LLCP acquired the company in 2020. Average unit volumes are over $1 million today. There have been terminations, closure of units for other reasons, and transfers across these different PE owners as well. (Between 2012 and 2021, TSC’s FDDs show a total of 69 terminations and 80 “ceased other,” including 18 during the pandemic.) However, there has also been a robust interest in TSC transfer units, including 44 transfers that changed hands in 2021. (Transfers are the sale of units by owners retiring and selling to other franchisees, both existing and new franchisees.) In addition, during the first three quarters of 2022, 70 percent of new units that were opened were expansions by existing franchisees,8 a strong indication that franchisees are happy with unit-level profitability. If it were otherwise, they would not continue to add new units. The company had more than 1,300 locations open by the end of 2023.9

What is the end game for this particular LLCP investment? Analysts believe TSC could be worth $2 billion in a public offering, which would represent 20x its annual $100 million EBITDA.10 But given that LLCP’s investment in the business in 2020 is relatively recent, there is time. Long-term debt payments are structured to avoid overburdening the company in the near term. According to TSC’s 2022 Franchise Disclosure Document, a balloon principal payment of $179.4 million isn’t due until 2026.11

Presumably, the company could go public or trade again by that time and the balloon payment would be partially or fully retired out of the IPO or sale proceeds (or refinanced if a longer hold is needed). LLCP could sell the company to another large PE firm or large restaurant platform, such as YUM Brands ($33 billion market cap, publicly traded) or Inspire Brands ($30 billion system sales, held by Roark). LLCP took this exact route when it sold Nothing Bundt Cakes to Roark in May 2021.

TSC provides an example of the PE Profit Ladder when it works well. Each step up the ladder can build wealth and enterprise value. Specialist firms adept at working with emerging brands usually enter first. The focus at this stage is on growth initiatives, improving underlying unit-level economics, and systematizing core business processes. 

As the company scales up, larger PE firms that are also growth-minded eventually take over and continue to invest in initiatives focused on substantially scaling the business. Some of the larger firms have experience taking brands public, so when the timing is right those partners can be a good fit. Along the way, franchisees tend to see improvements in the core business model, support, technology stack, and especially marketing. This often translates into improved unit profitability, which encourages franchisees to expand. Those operators who are no longer a fit are proactively moved out of the business. 

Franchisees benefit from robust interest in resales of good locations. If the net openings continue to rise and existing franchisees continue to buy expansion units, then retirements and ownership consolidation will naturally start to happen as the system matures. Under a proactive and well-managed franchise development program, management incentives are aligned with PE growth objectives, and a formal resale process delivers value to those franchisees who are ready to move on and need assistance to do so. In theory, this puts both PE and management on the same side as franchisees. All boats float higher as the tide rises on a wave of better franchisee and corporate-level profitability and improved franchisee confidence in the business.

Could Tropical Smoothie Cafe have achieved this scale and such strong unit-level results as quickly without private equity’s help? Perhaps. It’s difficult to know what could have been. But recall that, back in 2012, Tropical Smoothie Cafe had around 315 units with volumes of only $526,000. For a retail concept (i.e., there are site costs such as rent), this means the model was ripe for a rethink and some reinvention to drive higher sales and franchisee profitability. Improvements made to the business model and investments in marketing grew the brand to 1,330+ units by 2023, which is 322 percent unit growth. As an independent prior to PE involvement, it took TSC six years to add 115 units from 2006 to 2012. But a succession of experienced PE partners, working closely with an incentive-aligned and energetic management team that itself was highly engaged with franchisees, helped TSC add more than 1,000 units over the 11 years from 2012 to 2023. The company has seen 12 consecutive years of same-store growth and opened 170 new cafés in 2023, the highest number for the brand in a single year.12

This impressive growth was achieved in tandem with doubling average unit volumes and maintaining strong franchise satisfaction scores. TSC has made Franchise Business Review’s awards list every year since TSC started conducting the surveys going back to 2015, based on positive franchisee survey results.13 TSC also received strong third-party validation from FRANdata, which awarded TSC with a top FUND score rating in 2023 for the third year in a row, based on unit success rate, unit-level profitability, and franchisee support.14 For Tropical Smoothie Cafe, partnering with a succession of strong private equity partners elevated the brand and took it further, faster than it probably could have achieved on its own in the same amount of time.


1 Business Wire. (June 10, 2014) “Tropical Smoothie Cafe’s Average Unit Volume Tops $526,000.”

2 Karkaria, Urvaksh. (August 16, 2012) Biz Journals. “BIP Gains Stake in Tropical Smoothie Cafe.”

3 Business Wire 2014.

4 PR Newswire. (September 8, 2020) “Levine Leichtman and Management Acquire Tropical Smoothie Cafe.” This was the fifth investment out of LLCP’s sixth fund, Levine Leichtman Capital Partners VI, LP Golub Capital provided debt financing. 

5 As quoted in Littman, Julie. (September 9, 2020) Restaurant Dive. “How Tropical Smoothie’s New Owners Will Accelerate Growth.”

6 According to the FDD, acquisition-related expenses were $13.9 million, of which $6.7 million were investment banker fees and $7.2 million were change-in-control payments. The company also paid out $64.3 million in dividends in 2021.

7 Tropical Smoothie Cafe, 2022 Franchise Disclosure Document.

8 Tropical Smoothie Café company press release. (October 6, 2023) “Tropical Smoothie Café Propels Franchise Momentum in Q3.”

9 Confirmed via email with company official. November 8, 2023.

10 Abigail Summerville. (December 21, 2023) Reuters. “Tropical Smoothie Café to Explore $2B Sale.”

11 Tropical Smoothi Café, Franchise Disclosure Document Issued April 15, 2022. Notes to Financial Statements. “8. Debt.” p. F-19.

12 Company press release (April 27, 2023): PR Media. “Tropical Smoothie Café Named FRANdata’s TopScore FUND Award Recipient for Third Consecutive Year.” FRANdata fund scores are reports compiled for lenders that assess credit risk of specific franchise systems based on a number of factors, including unit-level economics. Confirmed with TSC company official on November 8, 2023.

13 See Franchise Business Review: Tropical Smoothie Café.

14 Company press release (April 27, 2023): PR Media.

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