Q2 2018 Restaurant Mergers and Acquisitions Theme Consolidation

Q2-2018 Restaurant Mergers and Acquisitions’ Theme: Consolidation

Q2-2018 restaurant mergers and acquisitions remained fast and furious. The deals announced align with many of the trends we’ve been tracking, from casual dining’s decline to the heat in restaurant investments — especially among middle-market companies.

2018 Q2 Restaurant Mergers & Acquisitions Update

Mergers and Acquisitions Consolidating Casual-Dining Sector

The four deals in casual dining in the second quarter of 2018 show that some operators are responding to the segment’s ongoing challenges by consolidating. Bertucci’s and Tilted Kilt were purchased by other restaurant groups (Earl Enterprises and Arc Group, respectfully), and Del Frisco’s, itself struggling, picked up the more stable Barteca Restaurant Group.

The strategies that back up these deals look promising: Earl Enterprises will return Bertucci’s to its scratch cooking roots, and Del Frisco’s purchase of Barteca gives it Bartaco, a more casual concept that will complement its higher-priced eateries without sacrificing service or quality. These initiatives highlight casual dining’s unique place in the restaurant landscape rather than trying to imitate the success of faster and cheaper options.

The fall-out from the casual-dining bubble bursting is far from over, and we can expect to see more consolidation as time goes on. But executives should be careful: multi-brand portfolios often struggle to maintain growth and per-brand enterprise value.

High Bluff Capital Partners & JAB Holdings Taking Over

With valuations, measured by EV/Revenue, in the restaurant industry growing at a 7.6% CAGR between 2010 and 2017 — the highest growth when compared to other industries — it’s no surprise to see so many private equity firms hunting in the market.

Almost exactly a month after High Bluff Capital Partners announced its purchase of Quiznos’ parent company QCE LLC, it acquired Taco Del Mar: more evidence that the middle market is steaming. While Quiznos has been struggling for years, and High Bluff hopes to stage a turnaround, the investment in Taco Del Mar is designed to fuel the fast-casual chain’s expansion efforts.

JAB Holdings is continuing its quest to own the world’s supply of coffee, spending $2b to acquire British Pret A Manger, which also has locations in the U.S. Its portfolio already includes Keurig, Green Mountain, Peets Coffee & Tea, and Caribou Coffee.

But the Luxembourg-based investment powerhouse won’t get its hands on international retail rights for Starbucks beans, capsules, and other products, which Nestlé purchased in May for $7.2b, a ten-figure sum that’s larger than the GDP for 60 countries, including Monaco, Fiji, and Somalia.

Nestle's Starbucks Deal Larger than GDP of 60 Countries

Traditional Foodservice Operations Acquiring Delivery & Meal-Kit Organizations

The two delivery and meal-kit deals announced this quarter show the deep interpenetration between these companies and more traditional foodservice operations.

Kroger bought Home Chef for $700m and plans to offer its meal kits in its vast empire of supermarkets. Landcadia, which owns and operates Landry’s Seafood, Bubba Gump Shrimp, Morton’s The Steakhouse, and over three dozen more restaurant and hotel brands, purchased Waitr, a delivery platform that services more than 5,000 restaurants in markets all over the Southeast.

Consolidation in the delivery segment won’t just happen between competing platforms — though there’s plenty of that. Now foodservice operators of all kinds are recognizing these services’ incredible value-add and either acquiring them or developing their own.

ABOUT AARON ALLEN & ASSOCIATES

Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketingbranding, and commercial due diligence for emerging restaurant chains and prestigious private equity firms. We help restaurant operators and investors make informed decisions, minimize risk, and maximize sustainable value. With experience on both the buy- and sell-sides of transactions, we have a robust understanding of trends and factors impacting restaurant chains and private equity funds around the world. We help protect, enhance, and unlock value throughout every phase of the investment lifecycle. Collectively, our clients post more than $100 billion in annual sales, span all 6 inhabited continents and 100+ countries, with tens of thousands of locations.

 

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