Auspex Capital unwinds RGT Management with dose of philosophy

It may seem like easy street for long time restaurant operator Sean Tuohy  of Memphis, now that he’s sold 105  restaurants and 55 properties for $213  million in six separate transactions. His  company, RGT Management, completed  those deals with the help of longtime  investment banker Auspex Capital last  year. Turns out it was a tough road.

“It’s a lot harder to unwind a company  than to build a company,” declares Tuohy,  the protagonist with his wife, Leigh Anne,  in the 2009 hit movie “The Blind Side,” about their adoption of Michael Oher, a  homeless African-American kid they saw  on the side of the road, wearing cut-off  jeans and a T-shirt in the bitter cold.

Oher went on to play NFL football for  the Baltimore Ravens and the Carolina  Panthers, and Sandra Bullock played  Leigh Anne Tuohy in the movie. Tuohy  downplays the initial encounter with the  16-year-old Oher, which perhaps explains  why he’s a no-nonsense restaurant oper ator who leaves the dramatic stories and  impassioned statements to his wife.

“It wasn’t that big of a deal. We just  happened to pass him,” and then his wife  ordered him to stop. “Leigh Anne told  me to pull over. I’m very coachable. It’s a  theme of my life.”

As for divesting his restaurants, includ ing 28 KFCs to his longtime operating  partner Michael Roe, whom he calls a  superstar, it’s a process. “You can’t just  walk away. You have to stairstep it down.  There’s people involved. I thought, turn  the lights off and you leave,” but no such  luck.

His wife’s younger brother got him  into the game three decades ago. “He  had a good night, and he couldn’t find  a Taco Bell,” says Tuohy with a laugh.  He bought one Taco Bell restaurant in  Meridian, Mississippi, a four-hour drive  each way every day, which corporate said  was challenged. “It was a euphemism” for  underloved. “I loved it to death,” he says.  “It was mine. I enjoyed cleaning out the  grease pans” and sweeping out the dirt.

“It was my dirt. I was responsible for the  dirt.”

He and Roe grew the business to 115  Taco Bell, KFC and Taco Bell/KFC  co-branded units in six states, seven  Freddy’s locations and the real estate  underlying 64 of the restaurants. On the  advice of Auspex, he retained 11 Taco  Bells, all in the beautiful and warm  Florida Panhandle, something he advises  others to do.

“I would recommend not getting out”  all the way. “I would recommend get

ting to a comfort level.” Chris Kelleher  and Naveen Goyal, his advisers at Auspex  on both the ride up and the divestment  down, told him over eight years to con sider the emotional as well as the financial  aspects. “Your competitive nature, there  will be a vacuum,” he recalls Kelleher say ing.

So which do the folks at Auspex like  better, the ride up or the ride down, I  asked, and they couldn’t come up with a  pat answer. “It’s kind of bittersweet,” says  Kelleher, when the client’s portfolio is  sold. “We’ve had a long relationship with  Sean. I went to his daughter’s wedding.  When I go to visit him I stay at his house,  and that relationship is going to be not  as close,” he says, although he knows it  won’t completely end. “I still talk to him  all the time. We enjoy the relationships  and that’s what we build our business on.”

Adds a philosophical Goyal: “It’s part  of the journey. They’re going to have to  build until it’s time to harvest.”

And then there’s this: “When you sell  you make a lot more money a lot quicker.” One thing Tuohy does enjoy post sale is a big pile of cash. “There’s nothing  wrong with that,” he says, especially  because “I’ve never had that before.” His  father was a schoolteacher and coach  and his wife’s father was a police officer.  “People who say money isn’t important are  the people who have it.”

Besides, it’s been a long time com ing. “I think we started out negative,”  he said, referring to cash on hand, and  money stayed tight most of his career as  he poured back equity into buying more  restaurants, and adding debt with each  transaction.

“People like myself who grow wealth  through leverage,” because they don’t  have any capital to start with, “you’re  fighting the leverage the whole time.”

Even though your top line keeps grow ing, “your bank account doesn’t show it.  I kept telling my wife, ‘We’re doing great.

We’re doing great,’” he says, but she wasn’t  feeling or seeing it.

“I was five days from bankruptcy twice,”  he said, in the year 2001, and he remem bers the time frame clearly because the  company’s massive restructuring doc ument he and his vendors and bankers  had worked on for months literally got  destroyed on 9/11. “The last signature was  someone in the World Trade Center,” he  says, so the entire restructuring had to be  postponed for a later date.

How did his operation get in so much  trouble back then? “It was going down  the cafeteria line, and my eyes got bigger  than my stomach.”

At one time he had as much as $70  million in leverage on a $200 million  operation. Did that make him nervous?

“It didn’t when I was 38. At 59 you don’t  know how much rebound time you have.  At 38 I had all the time in the world.”

The basketball metaphor isn’t an acci dent. Tuohy got a basketball scholarship  to Ole Miss, also known as the University  of Mississippi, after he went to an out standing high school, Isidore Newman,  because his father taught there and his  tuition was free. He was not a standout  student. “I tease everybody, I made the  top half of the class possible. I was just  a meathead trying to get to college on a  basketball scholarship,” he says.

“I was undersized and under-talented  and we weren’t very good when I got  there,” he says, but Tuohy led the Ole  Miss Rebels to their first SEC men’s bas ketball tournament championship in  1981. A point guard, “I played by fear that  I was going to get run over,” but many of  his records still stand.

Leigh Anne was a cheerleader for the  basketball team, and they got together.  “She said it was because we had short  shorts back then,” he jokes. If they had  worn the long, baggy shorts with the  leggings like today, forget it. “I am the

example—if people give you a chance,”  something good can happen.

The sentiment was bred into him by  his father, Tuohy says, a beloved coach  whose players still say decades later that  the elder Tuohy lifted them up.

When the couple met Oher, the idea  became action. “It really was the underly ing basis for our developing a relationship  with Michael. We couldn’t understand  why people valued him the way they  did,” he says. “People are so undervalued.  When given the opportunity, people can  do wonderful things. It’s the foundation  by which this whole world is flawed or  existed or has prospects.”

Oher just retired from the NFL at age  32 but Tuohy isn’t worried that he will go  broke like other young athletes. “He’s not

one of those. He’s very smart. He’s very  frugal,” and he’s been that way all along.  “When he came here, that’s who he was.  We just didn’t screw him up. We just gave  him an opportunity.”

Both with his children and with his  employees, he’s tried to follow the same  path, “that came to me by DNA.” His  style is “maybe a little hands off for peo ple. You have to allow them to get there,”

he says. “I’ve tried to let people become  who they’re supposed to be. It’s a harder  avenue than the other one. The people  who are like me,” meaning restaurant  operators, “we are control freaks.”

He closes with advice for other own ers in the same spot as he—find advisers  and listen to them over your career, as he  did with Auspex Capital. “I know then  and I really know now that I couldn’t do  it without them,” he says. “The problem  that people have who are at this level I  was at, there’s nobody to ask that ques tion of. That’s why Auspex was important  to me.

“We don’t have boards. We don’t like to  listen to anybody,” he says. “That’s when  it changes, when you start listening to  someone.”