Divestitures Lead 2014 Restaurant M&A Transactions

Divestitures Lead 2014 Restaurant M&A Transactions

jh chap nf2The J.H. Chapman Group, an investment bank specializing in mergers and acquisitions in the food and restaurant industries, has published its 2014 Chain Restaurant Merger & Acquisition Census.  This annual guide to acquisition activity in the retail foodservice industry, developed and analyzed by Chapman Principal David Epstein, provides unique perspectives on important restaurant industry trends.  A link to a free copy of the 2014 Chain Restaurant Merger & Acquisition Census is available at the end of this article.

david epstein nf1The Census captured 107 announcements in 2014, a 10% increase from last year. “There were more corporate divestitures of franchisor stores and legacy brands than we have witnessed in prior years,” said Mr. Epstein. “Refranchising programs contributed more to the deal numbers than in any prior year and several once-core brands saw new owners.”

Major refranchising programs included transactions from Burger King, Taco Bell and Wendy’s. Transactions involving franchised units represented almost 52% of all non-public transactions. “Over the years we have seen a shifting emphasis on owned versus franchised mix. Presently, concept owners seem to favor a larger franchise strategy,” noted Mr. Epstein.  “Not surprising, 96% of all franchise store transactions involved franchisees within the same concept.”

Corporate boards took action this year in jettisoning several legacy brands. Carlson sold TGI Fridays to Sentinel Capital Partners and TriArtisan Capital Partners. Golden Gate Capital acquired Red Lobster from Darden in one of this year’s largest transaction. Other similar transactions included the Burger King Worldwide acquisition of Tim Horton, Checkers sale to Sentinel and the sale of Einstein Bros. Bagels to JAB Holding.

Eight initial public offering announcements were recorded after many years of contraction in the number of public restaurant chains. The IPO announcements included Bojangles, Dave & Busters, El Polo Loco, Habit Burger Grill, J. Alexander’s, Papa Murphy’s, Shake Shack, and Zoe’s Kitchen. Four secondary equity placements were announced by public restaurant companies with most of the funds targeted for concept expansion.

Private equity funds were involved in 22% of all transactions, down from 35% last year. Among the notable transactions not mentioned above are Victory Park Capital’s acquisition of Daphne’s, Berkshire Partners’ investment in Portillo’s, the Cerberus Capital Management purchase of troubled Fox & Hound, Apollo Global Management’s purchase of CEC Entertainment, Karp Reilly’s purchase of Patxi’s pizza and TPG Growth’s acquisition of PJ United.

Diversification among existing operators intensified with 19 transactions, representing 20% of all non-public transactions captured this year. “Lenders are back in the market encouraging their best customers to consider growth through acquisitions,” said Mr. Epstein. Some examples of this year’s announcements include Food Management Partners’ acquisitions of both Furr’s Fresh Buffet and Don Pablo’s; First Watch Restaurants’ purchase of The Good Egg; Delaware North’s purchase of Patina Restaurant Group; and Buffalo Wild Wings’ investment in nine-unit Rusty Taco.

“For 2015, we are predicting another growth year for restaurant chain M&A activity. Lenders are becoming more aggressive in both loan pricing and availability, which should translate into attractive prices for sellers. IPO transactions may give way to more secondary financings used to finance growth and equity restructuring.  As we noted last year, operators have responded to the Affordable Care Act by a combination of raising prices, reconfiguring menu items and reducing staff. We are still concerned about the effect of commodity costs on earnings, but note that operators have gained much more experience in reacting to large swings during the last two years,” concluded Mr. Epstein.

report logo nf1The Chain Restaurant Merger and Acquisition Census has been published since 1989 and reported on more than 2,800 changes of ownership transactions for chain restaurants in the United States. Restaurant chains qualify for the Census if either the acquirer or the target is headquartered in the United States and has at least four separate foodservice establishments of the same or different concept.  Qualifying candidates include quick service, fast casual, full service, food service management and cafeteria/buffet firms.

The J.H. Chapman Group is an investment banking firm that specializes in mergers and acquisitions in the food and restaurant industries. The firm has offices in Chicago and Paris (www.jhchapman.com).

For a free copy of the 2014 Chain Restaurant Merger & Acquisition Census click HERE.

© 2015 PEPD • Private Equity’s Leading News Magazine • 4-2-15

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