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Bravo Brio Restaurant Group, Inc. (BBRG): Prominent Small Cap Investor Has a Taste for Italian and More

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More than just the food is hot at the Italian Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG). Since the beginning of the year, the stock is up over 38%, and this was the period when Red Mountain Capital Partners began acquiring a stake in the company. The most recent Form 13F by Red Mountain showed ownership of 592,297 shares of Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) as of March 31, 2013.

Red Mountain began acquiring its stake after the first of the year and has continued to acquire shares of Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) at prices ranging from $15.43 to $18.00 well into May, when it filed a Schedule 13D with the SEC.

The restaurants

Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) is the owner and operator of the Italian themed restaurants BRAVO! Cucina Italiana and BRIO Tuscan Grille. According to the company, BRAVO! is an upscale yet affordable full-service Italian restaurant serving classic Italian dishes. BRIO, on the other hand, is an upscale yet affordable Italian restaurant serving northern Italian food in a Tuscan Villa atmosphere.

The company currently operates approximately 103 restaurants with 48 being the BRAVO! concept and 55 being the BRIO concept. The company’s restaurants are located in 31 states, primarily in the eastern half of the United States with 17 located in the company’s home state of Ohio.

The competition

Brinker International, Inc. (NYSE:EAT)

The primary competition for Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) in the Italian upscale affordable dining segment is Maggiano’s, which is owned and operated by Brinker International, Inc. (NYSE:EAT). Maggiano’s is a restaurant concept originally developed in Chicago and acquired by Brinker International, Inc. (NYSE:EAT) in 1995. Serving classic Italian-American dishes to hungry customers, Maggiano’s has grown to 44 locations nationwide with many located in states where Bravo Brio has a presence. In addition to competing for customers with an appetite for Italian, Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) also competes with Maggiano’s and other major chains such as Cheesecake Factory, P.F. Chang’s, and BJs Restaurants for quality real estate locations.

The activist

Red Mountain is led by its managing partner, Will Mesdag. Before forming Red Mountain in 2005, an article appearing on the Financial News website stated Mr. Mesdag spent 21 years at Goldman Sachs, rising to general partner within the investment banking division before retiring in 2002. The strategy of Red Mountain is long-term value investing, primarily in small cap companies. Red Mountain is generally an active partner and typically has board representation.

The Red Mountain portfolio is relatively small with only 11 companies reported in the most recent Form 13F filed with the SEC. The holdings include companies such as Nature’s Sunshine Products, Encore Capital Group, and Marlin Business Services. The largest holding of the fund is currently Air Transport Services Group Inc. (NASDAQ:ATSG) with over 11 million shares, equating to a stake in the company of approximately 17.3%.

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