Recent 2017 Restaurant Investments (And What They Mean for the Industry’s Future)

Recent 2017 Restaurant Investments (And What They Mean for the Industry’s Future)

The past year has seen a flurry of high-profile mergers and acquisitions in the restaurant space, and restaurant investments. We’ve already rounded up most of the 2017 restaurant investments in previous posts but here, we pick up where we left off in September 2017, rounding up the most recent restaurant M&A news and examining how 2017 restaurant investments are indicative of the future.

2017 Restaurant Invesments Overall

Valuations for M&A restaurant deals are close to historical averages (over the last ten years). In terms of EV/EBITDA, there has been an 8% increase in the multiple compared to last year (some large deals with hefty valuations took place this year, such as the acquisitions of Panera Bread and Popeyes). The multiple is 7% higher than the historical average since 2008. In terms of EV/Revenue, transactions this year so far are at a multiple of 1.0, equivalent to the historical average and 11% higher than 2016.

Overall, restaurant M&A Activity continued at a high pace in 2017, and included all manner of deals, and in nearly every segment. Among the most notable deals, 44% of targets are in the Fast Casual or Casual Dining segments, pointing to evidence of consolidation. Restaurant M&A Deals 2017

2017 Restaurant Investments, IPOs, Mergers and Acquisitions: The Recent Highlights

TFI TAB food investments 2017 restaurant investments TFI TAB Food Investments (TFI TAB Gida), the franchisee for Burger King and other fast food chains in Turkey and China, filed to raise up to $400 million in an initial public offering in September. The company planned to list on the Nasdaq under the symbol QSRG. Tom and Chee restaurant investments Also in September, Tom + Chee, a Cincinnati-based grilled cheese restaurant chain, was acquired by Gold Star Chili, which bought the assets from its lender, and finalized the deal on September 20. uncle-julios-logo L Catterton, a consumer-focused private equity firm, announced in September that it had acquired Uncle Julio’s, a polished casual Mexican restaurant. Terms of the transaction were not disclosed. muscle maker grill 2017 restaurant investments Muscle Maker Grill, a Texas-based fast-casual chain, said in October it planned to launch a Regulation A+ initial public offering (IPO). The news came despite the fact that auditors appeared worried about the company’s health. The IPO was expected to allow Muscle Maker to stay in business in the short-term. Boston Pizza Boston Pizza International announced its plans for internal re-organization through what it called “the orderly succession of ownership at BPI, Canada’s largest franchisor of casual dining restaurants” in September. According to a press release, the reorganization would involve BPI obtaining new senior credit facilities in the amount of $50 million from the Bank of Montreal, Corporate Finance Division and increasing its leverage by drawing down $40 million on these facilities. wow bao restaurant In October, Valor Equity Partners made a majority investment in Lettuce Entertain You Enterprises Inc.’s quick-service Wow Bao concept. The funding is expected to allow Wow Bao to open a delivery-only platform in Los Angeles and expand its brick and mortar presence. HappyJoes Lawrence Whitty, founder of Happy Joe’s Pizza and Ice Cream Parlors, announced in October that he had sold a majority stake of the iconic pizza chain to Dynamic Restaurant Holdings. Local reports indicated that the new owners hope to grow the brand across the region, before pushing a national expansion strategy. Ruby Tuesday logo acquisition Ruby Tuesday was sold for $2.40 a share, or $146 million, to a fund managed by private equity firm NRD Capital, the company announced in October. The deal includes the acquisition of all of the restaurant chain’s stock in cash. Urbane-Cafe-restaurant-investments The founders of Panda Express made moves in October, too, investing in Urbane Café, a fast-casual sandwich chain. Founded in 2003, the concept has grown to just a dozen locations — the new influx of cash means that growth will likely speed up in coming years. arbys-buffalo-wild-wings-logos Roark Capital made headlines in November when it announced a merger of Arby’s Restaurant Group and Buffalo Wild Wings. And the PE firm isn’t slowing down, with reports suggesting Roark is anxious to acquire other brands along the same lines of the chicken wing and sandwich chains, merging them all under one name — Inspiring Restaurant Brands — and eventually going public. Yardbird 2017 restaurant investments Yardbird Southern Table & Bar, a Miami concept, announced it had received a “significant” investment from TriSpan Rising Stars LP to fund the growth of the chain. The growth is happening quickly, too — a new location in Los Angeles was announced for 2018. maria empanada 2017 restaurant investments The fast-casual Denver chain Maria Empanada received an approximate $3.5 million in Series A funding from the Colorado Impact Fund in November. The VC funding will allow the chain to upgrade its kitchens and expand the concept to new regions. Hurricane Grill and Wings FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ:FAT) announced in November that it had signed a definitive agreement to acquire Hurricane Grill & Wings for $12.5 million. The acquisition will be funded with cash on hand and third party financing, and was expected to close in 2017. mendocino_farms In November, TPG Growth acquired a majority stake in Mendocino Farms, a California sandwich chain. The PE firm said it planned to use the acquisition to expand the concept outside the state. au-bon-pain One of the biggest restaurant M&A deals of 2017 was the announcement that Panera Bread was buying the Boston-based bakery-cafe chain Au Bon Pain for an undisclosed amount (announced in November). Panera was acquired earlier this year by the privately held investment firm JAB for $7.5 billion. The acquisition is part of Panera’s plan to expand its footprint beyond the traditional storefronts and into hospitals, universities, transportation centers, and urban locations. Tazo_logo Another major announcement came in November, with the news that TAZO — the tea company owned by Starbucks — would be acquired by Unilever. Under the asset purchase agreement, Unilever will acquire the TAZO® brand and all related intellectual property, signature recipes and inventory for US$384 million. bento sushi restaurant acquisitions UK-based chain Yo! Sushi announced it would buy Canada’s Bento Sushi in a $78.2 million deal in November. The combined business will make the company one of the largest sushi companies outside of Japan. centerplate-logo In mid-November, Sodexo announced it had signed an agreement to acquire Centerplate, a food and beverage, merchandise and hospitality services provider at sports facilities, convention centers and entertainment facilities throughout the US, the UK, Canada and Spain. The deal was worth a reported $675 million and was expected to close by the end of 2017. another broken egg acquired New York PE firm Beekman Investment Partners made a majority investment in breakfast concept Another Broken Egg in November. At the time of the announcement, the firm said it hoped to “build on the company’s legacy and accelerate growth.” Milkbar Bakery concept Milk Bar announced a strategic investment from RSE Ventures, with the increased capital to be used as allow the concept to grow both as a brick-and-mortar and digital brand. RSE Ventures was co-founded by Matt Higgins, vice chair of the Miami Dolphins, and Stephen Ross, an owner of the Miami Dolphins. alacarte ubereats 2017 restaurant investments In December, Alacarte (a marketplace company for the QSR sector) secured $700,000 in angel financing that will allow it to form a partnership with UberEats to offer what it said will be a “virtual food hall” experience. In other words, the app will allow customers to place one order from multiple types of concepts (Mexican, burger, sushi, etc.) and have it all delivered at the same time. upward projects 2017 restaurant investments Also in December, Brentwood Associates announced it had taken a significant stake in multi-concept company Upward Projects, which operates five brands (Windsor, Churn, Federal PIzza, Positano WineCafé and Joyride Taco House) and 12 restaurants in Arizona and Colorado. Terms of the deal were not disclosed, but the California PE firm already has a broad restaurant portfolio, with investments in Veggie Grill and Blaze Pizza, among others. the counter burgers restaurant acquisitions investments MTY Food Group Inc., owner of Kahala Brands, agreed to acquire the parent of The Counter and Built Custom Burgers brands, it announced in December. Terms of MTY’s planned acquisition of the California-based company were not disclosed.

What 2017 Restaurant Investments Mean for the Future of the Industry

Even a cursory glance at the above investments yields a few notable trends. Thanks to continued investments in fast-casual concepts, it’s clear that that segment isn’t going to dry up any time soon. But there are newer trends afoot, as well. Wow Bao’s foray into delivery-only is certainly notable, as it signals further growth in that arena. Restaurants with no physical locations have been cropping up around the country, largely in response to the success of delivery platforms like UberEATS and GrubHub. For restaurant concepts, the move is a win-win. A recent report by Fast Company found that many fast-casual restaurants dedicate 75% of their stores to seating, while some 90% of their customers take their meals to-go. A “ghost” storefront — in which customers can order their meals to have it delivered, but never actually go in the restaurant — certainly solves that problem. It also remedies high rent costs, as delivery-only units don’t necessarily have to be located in busy, walkable (i.e. high rent) locations. So, what does the future hold? For one thing, there’s been a lot of recent buzz about digital M&A. In fact, according to McKinsey, there’s been a 4 – 5% uptick in digital M&A deals since 2016. What is digital M&A, exactly? It could entail a company investing in analytics and software to improve the way they make and sell their products or it could involve a company buying sensors or Internet of Things applications to add to their products (adding sensors to produce, for interest, so buyers can know when it was picked and what farm it came from).

Overall, there were 114 restaurant M&A deals so far in 2017 (as of October), roughly 5% lower than the corresponding mark for 2016 but close to the number of deals in 2015. The share of strategic deals (in comparison to financial deals) is roughly 82%, similar to last year.

About Aaron Allen & Associates

Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, and commercial due diligence for emerging restaurant chains and prestigious private equity firms. We work alongside senior executives of some of the world’s most successful foodservice and hospitality companies to visualize, plan and implement innovative ideas for leapfrogging the competition. Collectively, our clients post more than $100 billion, span all 6 inhabited continents and 100+ countries, with locations totaling tens of thousands.

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