Recent data suggests that restaurant mergers and acquisitions (M&A) are set to continue growing, both in number and in value. In fact, the number of restaurant M&A deals in the US increased by 86% between 2004 and 2016. Recently, we’re seeing specific pockets of the industry benefit from restaurant mergers and acquisitions. Premium coffee has been given a boost with the acquisition of Blue Bottle Coffee, by Nestlé (which came on the heels of Peet’s Coffee & Tea’s purchase of both Stumptown and Intelligentsia a couple years back). Steakhouses and chains in the snacking category have proven popular targets for 2017 restaurant acquisitions, as well. Below, we take a closer look at 2017 restaurant mergers and acquisitions, picking up where we last left off and updated as of September 2017.
Perhaps the biggest 2017 restaurant merger or acquisition deal (at least so far) was the September announcement that Post Holding Inc. (maker of Honey Bunches of Oats and Grape-Nuts cereals), would buy Bob Evans Farms for roughly $1.5 billion. After activist investor Thomas Sandell began pushing for change, Bob Evans announced it would split the company in 2017, when it sold its 522 Bob Evans restaurants to private-equity firm Golden Gate Capital in a $565 million deal in May. The chain was then taken private as Bob Evans Restaurants.
Global Franchise Group, the parent company of Great American Cookies, acquired the 450-unit Round Table Pizza chain for an undisclosed amount in September 2017. The acquisition of the pizza company gives the Atlanta-based Global Franchise Group a portfolio of brands in operation of more than 1,500 locations and nearly $1 billion in combined system sales. GFG also owns Pretzelmaker, Hot Dog on a Stick and Marble Slab Creamery/Maggie Moo’s Ice Cream.
While rumors swirled that that Panera might be acquired by one of its peers in the restaurant industry (like Domino’s, Restaurant Brands International, or Starbucks), the bakery and cafe chain eventually found a new parent in JAB in a $7.5 billion deal completed in July 2017. JAB, a German-based conglomerate, has also acquired Krispy Kreme, Keurig, and Peet’s Coffee & Tea.
Restaurant Brands International made headlines in 2017, when it announced it would acquire Popeyes Louisiana Kitchen for $1.8 billion in cash. The company is expected to use its international reach to bring Popeyes’ to new geographies around the globe. Restaurant Brands was formed in 2014, through an $11 billion merger between Burger King and Canadian chain Tim Hortons).
In July, Starbucks announced it had entered into a definitive agreement to acquire the remaining 50% share of its East China business from long-term joint venture partners, Uni-President Enterprises Corporation and President Chain Store Corporation, a deal valued at approximately $1.3 billion in cash consideration (and the largest single acquisition in the company’s history). The acquisitions builds on the company’s ongoing investments in China, its fastest-growing market outside of the United States in terms of store count.
Nestlé bought into the third-wave coffee buzz with its September acquisition of a 68% stake in Blue Bottle Coffee, an Oakland-California-based purveyor of high-end coffee. According to a press release, Blue Bottle Coffee will continue to operate as a stand-alone entity. Other terms of the deal were not disclosed. Currently, Blue Bottle has about 40 cafés in New York, San Francisco and other metropolitan cities, with that number expected to reach 55 by year’s end. The acquisition will make Blue Bottle the latest coffee chain in Nestlé’s cadre of brands, which also includes Nescafe and Nespresso. Nestlé’s been snapping up other food brands, too — earlier this year it purchased vegetarian packaged foods company Sweet Earth, and also invested in meal kit company Freshly.
In March 2017, Darden Restaurants agreed to a buy Cheddar’s Scratch Kitchen for $780 million from a group of stockholders including private equity firms L Catterton and Oak Investment Partners. Cheddar’s currently has 165 locations, including 140 owned and 25 franchised, in 28 states, though Darden has noted the chain has “significant growth opportunities in new and existing markets” and average annual restaurant volumes of $4.4 million.
In May, Chicago accelerator Cleveland Avenue LLC (founded by former McDonald’s CEO Don Thompson) acquired a majority stake in the fast-casual pizza chain PizzaRev. The fast-casual pizza chain grew quickly after a 2003 investment by Buffalo Wild Wings. PizzaRev and currently has more than 50 locations, with 200 more under development.
In March 2017, private equity firm Oak Hill Capital Partners announced plans to buy the Tampa-based Checker’s fast-food chain from its equity ownership for roughly $525 million.
Fidelity National Financial Ventures, the parent of Ninety Nine Restaurant & Pub, a 106-restaurant chain, announced in August that it would merge with J. Alexander’s Holdings in a $199 million deal. J. Alexander’s operates four concepts including 19 eponymous locations, as well as Redlands Grill and Stony River, each with 12 units. The 65-year-old Ninety Nine, a casual dining chain, reportedly had more than $300 million in revenue in 2016.
In September, Fatburger parent FAT Brands, which recently announced plans to go public, paid $10.5 million to acquire Homestyle Dining, owner of the Ponderosa and Bonanza steakhouse chains. The acquisition includes ambitious plans for international franchising, as well as the development of a fast-casual version of Ponderosa.
In January, Argosy Private Equity and MTN Capital Partners took a controlling stake in Italian ice chain Rita’s, which has more than 600 units in the US, and is working to expand internationally in the Philippines, Canada and the Middle East. Terms of the deal were not disclosed.
Caribou Coffee announced plans to acquire Bruegger’s Bagels in August. Caribou’s parent, JAB Holding Co., is the owner of a growing portfolio of restaurant brands including Panera Bread, Krispy Kreme Doughnuts and Einstein Bagels. The 269-unit Bruegger’s was acquired for an undisclosed amount.
SBE, a privately held hospitality company that operates hotels, restaurants and nightclubs around the world, announced in March that it was in “advanced discussions to merge Hakkasan Group into the SBE family.” Founded in 2002, SBE manages 23 hotels and residences in nine markets and many more entertainment and food and beverage outlets, including Bazaar Meat, Cleo, Umami Burger and Katsuya restaurants at SLS Las Vegas; Double Barrel Roadhouse at Monte Carlo; and Hyde nightclub and lounge at Bellagio and T-Mobile Arena.
In a deal meant to propel expansion, San Francisco fast-casual restaurant Tava Kitchen was acquired by Curry Up Now, another Bay-area Indian concept, in May. Terms of the deal were not disclosed.
Reach Restaurant Group sold Mooyah Burgers, Fries & Shakes to a partnership led by Balmoral Funds LLC and Gala Capital Partners LLC in an April 2017 deal. The move means that the better burger chain will be primed for further growth, having entered several new states in 2016.
In May, The Chalak Mitra Group (parent to the Genghis Grill chain) announced the sale of three of its non-core brands: Elephant Bar Restaurant, Baker Bros. American Deli, and Ruby Tequila’s Mexican Kitchen. The 10-unit Elephant Bar was reportedly sold via stock purchase agreement to an affiliate of SBR LLC, a Connecticut investment company.
Star Buffet announced it had acquired The Rancher’s Grill steakhouse in Deming, New Mexico for an undisclosed amount in March, with the move expected to integrate the new restaurant into the company’s StarTexas Restaurants, Inc. subsidiary.
In July, PE firm Advent International announced its purchase of a majority stake in breakfast-and-lunch chain First Watch from Freeman Spogli & Co. In a statement released at the time, the firm’s managing director said the investment was an obvious one, as First Watch “is strongly aligned with trends toward healthier eating and better ingredients, and positioned to not only grow within existing markets but also to expand the unique concept to guests in new geographies.”
Roark Capital, parent to Carl’s Jr., Jimmy John’s, Arby’s and a slew of other restaurant chains, added the Jim ‘N Nick’s Bar-B-Q chain to its holdings in July. The price paid for a controlling interest in the 37-unit regional barbecue chain was not disclosed.
In July, six-unit Hawaiian chain Mo’Bettahs was acquired by Four Foods Group, parent to the Kneaders Bakery & Café chain, and a portfolio of brands including three units of R&R Barbecue, two locations of The Soda Shop, and 48 Little Caesars restaurants in Alabama and Louisiana.
After two potential buyers backed out of deals that would have seen them acquire the bankrupt Garden Fresh, the owner of Souplantaion and Sweet Tomatoes, Cerberus Capital Management swooped in. Terms of the January deal were not disclosed.
In January, Palo Alto-based Symphony Technology Group announced it had acquired Fishbowl Inc., a customer engagement platform provider for the restaurant industry. Fishbowl helps restaurants optimize their marketing, strategy, and revenue management through advanced guest analytics software. Yelp acquired restaurant reservation app Nowait for $40 million in an all-cash deal in March. The deal worked to transition Nowait’s waitlist system and seating tool to Yelp, where it’s been integrated in the Yelp app and mobile food-ordering system, Yelp Eat24. In August, Grubhub acquired Eat24 from Yelp for $287.5 million in cash. (Yelp paid less than half that price, $134 million in cash and stock, to acquire Eat24 in February 2015.) Yum China Holdings (the operator of KFC and Pizza Hut restaurant chains across the country) bought a controlling stake in Chinese food delivery service provider Daojia in May. No figures were released, though Reuters reported in November thatYum China was in talk to buy the company for roughly $200 million.
Restaurant mergers and acquisitions deals are gravitating more towards the strategic (rather than the financial): the share of strategic deals increased 16% between 2004 and 2016. That suggests that a level of understanding (one supported by a specialist with knowledge of the external and internal factors affecting restaurants today and tomorrow) will be much-needed for deals in the future. We’ll likely see even more restaurant M&A deals in the future, thanks to more funding flowing into the space. In July, NRD Capital closed on a $104 million fund, which it plans use to make more restaurant acquisitions.
Not all future deals will be massive takeovers, though. In fact, some might focus on smaller acquisitions. Former Bain investor Andrew Balson (who worked for the firm during its buyout of Domino’s in 1999) recently started his own fund, Cove Hill Partners, which has plans to focus on the restaurant segment. Cove Hill recently received $1 billion in commitments — which it plans to use on smaller, concentrated investments (about five to eight deals, according to an interview with Nation’s Restaurant News).
As the above roundup illustrates, more investment is being placed into high-growth concepts — those in categories like snacking and coffee, rather than in slumping segments like casual dining. Outdated concepts in saturated sectors will struggle to find buyers, while on-trend concepts will likely prove to be the most worthy investments.
Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, commercial due diligence for emerging restaurant chains and prestigious private equity firms. Aaron has personally lead boots-on-the-ground assignments in 68 countries for clients ranging from startups to multinational companies posting in excess of $37 billion. Collectively, his clients around the globe generate over $100 billion annually and span six continents and more than 100 countries.