Former Hedge Fund Trader Builds $135 Million Burrito Fortune

(Bloomberg) — When Steven Marks visited Australia in the early 2000s, he was struck by the quality of Mexican food. This, in his opinion, is humiliating. The Long Island native, veteran of Steven Cohen’s SAC Capital and later Cheyne Capital, was so smitten with burritos and tacos that he decided to start his own restaurant.

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“Back then, Mexican food was something to eat when you had a margarita,” Marks said in an interview Wednesday. “I walked into my office one day and said to my business partner, ‘I’ve got the next big idea. We’re going to reintroduce Mexican food to this country.’

It became a reality in 2006 when he and childhood friend Robert Hassan opened the first Guzmán y Gomez in Newtown, a suburb in Sydney’s inner west. Eighteen years later, the Mexican-themed fast food chain has 185 restaurants in Australia, 17 in Singapore, five in Japan and four in the US, boasting network sales of A$759 million ($506 million) last year.

Guzman y Gomez Ltd. The shares began trading on the Australian Securities Exchange on Thursday under the ticker GYG at a valuation of A$2.2 billion. After investment firm TDM Growth Partners, Marks, 52, has shares worth more than A$200 million, according to the Bloomberg Billionaires Index.

Shares rose 36% to A$30 in the company’s trading debut at 12:23pm in Sydney.

Taking McDonald’s

GYG’s offer will raise A$335.1 million, with A$200 million to fund expansion plans, with the remainder going to existing shareholders. GYG eventually wants to grow to 1,000 restaurants in Australia, the same number as McDonald’s, with plans to open 30 to 40 new joints each year.

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“I always call GYG fast food. Everyone said, ‘No, no, you’re fast casual, McDonald’s is fast food,'” Marks said. “I said, ‘McDonald’s is not food’.”

That didn’t stop former McDonald’s Australia CEO Guy Russo from investing in 2009. He is now chairman of GYG and owns more than A$140 million in shares, according to the Asset Index. His son, Gaetano Russo Jr., owns three GYG restaurants.

It’s not the only family connection: GYG’s co-CEO Hilton Brett’s son has also entered into a letter of intent to become a restaurant owner later this year.

Brett was appointed last October after the company indicated Marks would step down as CEO due to a health scare that turned out to be minor. The resignation never happened.

GYG’s A$2.2 billion valuation is A$10.6 million per restaurant. By comparison, Chipotle Mexican Grill Inc., a staple of the U.S. fast-casual restaurant scene, is valued at more than $40 million per store, according to data compiled by Bloomberg.

Economic moats

Last week, GYG raised the size of its initial share sale by nearly 40%, making it Australia’s biggest offering in nearly a year, according to data compiled by Bloomberg.

Morningstar Inc. Analysts are wary of the company’s valuation, saying it is too early to give GYG an “economic moat” — a competitive advantage that would keep rivals at bay. Their shares are worth A$15 each, 32% below GYG’s offer price.

“We expect Guzmán to maintain attractive store economics over the next decade,” analysts led by Johannes Fall wrote in a June 7 note. “However, as the store moves forward to deliver a moat and extend our confidence beyond the next 10 years, we should see solid evidence that the brand and store economics are sustainable.”

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On a statutory basis, GYG lost A$2.3 million last year and forecasts a further loss of A$16.2 million in 2024 before turning a profit in 2025.

Marx says that he was early accustomed to hard work. His father was “a pond short of Miami Beach”, a drug addict who left Marx’s mother to raise him, his twin brother and his disabled older brother. By the age of eight, Marx was doing odd jobs to support his family.

But his gift for numbers helped him gain a place at the University of Pennsylvania. After graduating in 1994, he was “hired by a guy named Stevie Cohen,” Marks said. He joined Connecticut-based SAC Capital’s equity desk in Stamford, where he stayed for four years before moving to Cheyne Capital in London.

Marks said he learned to be “laser focused and never compromise,” but eventually decided he was sick of betting on other people’s businesses. “I wanted to be on my own, that’s why I moved to Australia,” he said.

–With assistance from Andrew Heathcote.

(The fifth column adds stock performance after trading introduction.)

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