Another one appears to have bitten the dust; figuratively, that is. Yesterday, specialty restaurant name Fogo de Chao (FOGO) accepted a $560 million, $15.75 per share buyout offer from Rhone Capital. That price represented a 25.5% premium over the previous day's closing price, but if you ask me, that's way too cheap.
It's also just the latest in a series of restaurant transactions that have occurred over the past year or so, that also include Buffalo Wild Wings, Ruby Tuesday, Bob Evans, and Panera Bread. I've long believed that the restaurant space was ripe for consolidation, and there are probably more deals on the way, but I admit that I certainly did not see the FOGO deal coming.
I did view FOGO, as one of the more interesting restaurant names, one that was reasonably priced among a sea of names that were overpriced. However, I was never quite able to pull the trigger; it was never compelling enough, and I always thought I could get it cheaper. As my father told me when I was a teenager "he who hesitates is lost". Could have made some money here, but it would have been the latest example of a name I owned seemingly taken out on the cheap.
It certainly appears as though Rhone Capital is getting a great deal here, paying about 17 X 2019 consensus earnings estimates, for one of the more specialized publicly traded restaurant plays that also has a decent balance sheet, and fairly solid net profit margins. Of course, the ink was not even dry on the deal when a slew of law firms announced "investigations", prompting shareholders to contact them. Evidently, they think the deal may undervalue FOGO, just as I do, although our motivations may be very different. They are likely looking to start a class action lawsuit; while I am just mourning the loss of another interesting publicly traded name.
As I stated previously, I do believe there will be additional acquisitions in the space in the coming year. I held out a few possibilities in late 2017; these included some names that have drawn some activist investor interest, which has been a common theme among many of the restaurant takeovers, with the exception of FOGO. Buffalo Wild Wings, Ruby Tuesday, Bob Evans, and Panera all had activists involved in one way or another leading up to their acquisitions.
Keep an eye on this sector. It got way too big, with too many publicly traded names, and now private equity is picking them off one by one.
