Elephant Bar Restaurant: Mezzanine Financing
Oday Tillawi
Professor Shelly Canterbury
Finance 441-001 Spring 2016
03/29/2016

Executive Summary:
Elephant Bar Restaurant is a California based company founded by Chris Nancarrow in 1979. The restaurant started as a test concept of Carrow’s Restaurants, a chain of more than 150 full-service restaurants. Elephant bar was sold to W. R. Grace in 1985, and repurchased in 1993. The company aims to differentiate itself through innovative culinary concepts. On a product level, the company provides an “elephant-sized” culinary experience to the customer. In order to support innovation, the menu featured complex dishes that included “one unusual ingredient.” On a store level, the restaurants accentuated an architecturally dynamic African theme that allows customers and staff to scan the area and roam around easily.
Early in its years, the company was a child of Saunders Karp and Megrue, LLC (SKM). SKM had invested $15.5 million in Elephant Bar in return for major ownership and control. Specifically, in September 2003, SKM controlled 6,192,411 shares, granting itself a 53.8% ownership stake in E-bar. With this hefty investment, Nancarrow pursued his expansion plans and took E-bar from 12 stores to 23 stores in September 2003.
Management has decided that because of the geographic concentration E-bar cultivated, the restaurant is vulnerable to high diversification risk exposure. This type of risk amplified the need to expand into other states in order to diversify and mitigate microeconomic fluctuations in California. With expansion efforts still intact, Nancarrow sought another source of capital as fuel. Equity financing is no longer demanded as management, including Nancarrow, were afraid that ownership will be diluted. Therefore, SKM has pooled its efforts to search for an investor that is willing to provide a source