If we just looked at the numbers, we might conclude that restaurant mergers and acquisitions stagnated last year. But there were still some massive deals: notably Post Holding Inc.’s purchase of Bob Evans Farms for $1.5b, Restaurant Brands International’s (RBI) deal to acquire Popeyes Louisiana Kitchen for $1.8b, and Panera selling to JAB, parent company of Caribou Coffee and Peet’s Coffee & Tea, for approximately $7.5b.
Fewer transactions seems to correlate with higher valuations — as foodservice companies get more expensive, they look less like lucrative investments, especially to private equity firms looking to turn around the business and make a profit selling it some years later.
This may not be a phenomenon unique to restaurants. Globally, we’re seeing dry powder in its totality and the uncalled buyout capital — funds set aside specifically for acquisitions — segment levels rise.
Last year, 37% of dry powder was uncalled buyout capital ($633m of $1.7t), the highest percentage of the last four years. (The category accounted for 34%, 34%, and 37% of dry powder in 2016, 2015, and 2014, respectively.) Considering the sharp rise in EV/EBITDA ratio, it’s not surprising investors are saving their funds for less expensive purchases.
So far this year, we’ve seen strong restaurant mergers and acquisitions in casual dining, delivery, and among more health-conscious brands.
Private Equity Buys Up Casual Dining
Already this year, six casual-dining chains have been acquired. Of those deals, two went to other foodservice operators in strategic deals: Golden Tree, the parent company of quick service restaurant (QSR) fried-chicken chain Golden Chick, purchased Texas-based Fireside Pies, and Fresh Hospitality scooped up Taco Mac.
Besides the undisclosed buyers who took Huddle House off Sentinel Capital Partners’ hands, the rest of the deals went to private equity firms: Rhone Capital bought Fogo de Chão; Spice Private Equity purchased Bravo Brio Restaurant Group, and TriSpan Rising Stars, a foodservice-centric firm, acquired Rosa Mexicano.
Fogo de Chão and Bravo Brio both struggled in the months ahead of their acquisitions. Though the Brazilian steakhouse has strong average unit volumes, high average checks, and good profit margins, it had failed to build stock prices since its IPO in 2015.
Bravo Brio, which owns Bravo! Cucina Italiana, Bon Vie Bistro, Brio Tuscan Grille, and Brio Coastal Bar & Kitchen, has suffered the fate of many casual-dining restaurants: declining sales and dwindling locations.
Consolidation in the Delivery Segment
There’s lots of movement among food delivery companies as well. UberEats purchased Ando, the delivery-only concept from celebrity chef David Chang. Chang hoped to find solutions to all the various challenges food faces between the kitchen and the customer’s front door but got bogged down in the incredibly complex logistics and technical requirements. It often used Uber Eats to deliver its food, only hiring its own delivery staff for core clientele. Ando ceased operations the day after the deal was announced.
Square, Caviar’s parent company, bought certain assets of Dallas-Fort Worth–based Entrees On-Trays. The acquisition is a nice match, as both Caviar and Entrees On-Trays specialize in delivering meals from local restaurants.
HelloFresh bought up meal-kit competitor Green Chef, which specializes in organic ingredients, vegan and gluten-free options, and meals that fit in with Paleo and Keto diets. This nicely expands HelloFresh’s offerings.
Consumer Trends Make Their Appearance in Restaurant Mergers And Acquisitions
Another trend among 2018’s mergers and acquisitions has been health-conscious meals. SJB Brands purchased Jamba Juice–competitor Juice It Up!, which has recently expanded its beverage offerings to include cold-pressed organic and raw juices.
Grabbagreen, a QSR concept that replaced supersized value meals with superfood bowls and wraps, was purchased by Canadian franchisor MTY Food Group, which also owns Blimpie, Cold Stone Creamery, and Pinkberry.
Finally, Butterfly, a private equity firm specializing in foodservice, bought Modern Market, which has locations in Arizona, Colorado, Maryland, Texas, and Washington, DC. Modern Market makes farm-to-table accessible to more people by offering sustainable ingredients in a quick-service environment.
So far, M&A activity is matching up with broader trends in the foodservice industry: the casual-dining segment continues to falter, delivery services remain a hot commodity, and a growing consumer demand for health options is driving acquisition strategies.
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 six inhabited continents and 100+ countries, with locations totaling tens of thousands.