JAB Holdings' $2 billion takeout of restaurant chain Pret a Manger flew under the radar after being announced last week, primarily because the target is not publicly traded, but owned by UK private equity firm Bridgepoint. However, this is just the latest in a long line of restaurant deals, not to mention the buildout of the JAB empire. Over the past four years, Luxembourg-based JAB's acquisitions have included Keurig Green Mountain, Panera Bread, Krispy Kreme, and Einstein Noah, all former publicly traded U.S. stocks. JAB is seemingly trying to "corner" the breakfast, lunch, and coffee markets.
Other recent publicly traded restaurant names that have been acquired include Buffalo Wild Wings, Bob Evans, Ruby Tuesday, and Fogo de Chao. The space remains, I believe, ripe for further consolidation, and more acquisitions.
I believed that up and comer Mediterranean casual dining name Zoe's Kitchen (ZOES) might draw some attention. It is one of the freshest concepts (in my view anyway), but has continued to stumble. I'd followed it for years, always finding it too expensive before taking a small position last July in the $9 range. After a nice run to the $17 range however, the stock has come full circle, right back to $9. A first-quarter earnings miss (loss of 13 cents versus 1 cent loss consensus), and cut in guidance for 2018 revenue, and same store sales sent shares down 45% over the past couple weeks. The euphoria for this stock, which went public in 2014, and topped out at about $45/share in 2015, is gone, as are the growth investors. With a tiny enterprise value (market cap + debt - cash) of just $220 million, it would still make for a cheap target, and might do well in new hands. Hard to say, however, whether there would be any takers at this point.
A more interesting target, however, would be Cracker Barrel (CBRL) , which has several attractive attributes. First it is not only wildly profitable, but also cheap (relative to the restaurant sector) at 16X next year's earnings. Secondly, it returns a lot of cash to shareholders through dividends. Including special dividends, the company will return $8.75 per share to shareholders in the coming year. That has greatly benefitted Biglari Holdings (BH) , which owns 19.74% of the company, and in the past has taken some potshots at the company in terms of activism.
Third, the company is real estate rich, owning 418 of its locations, many of which are in valuable high traffic areas. The real estate angle is an attractive sweetener to potential acquirers who could engage in sale and leasebacks or other transactions in order to extract value. Fourth, for a company that owns so much real estate, it does not have a great deal of debt, just $400 million. In addition, there is $174 million in cash on the books. Lastly, the company has a cult-like following among diners.
I'm not sure whether a struggling Zoe's, or thriving Cracker Barrel would be of interest to an entity such as JAB. One thing I am fairly sure of, however, is that there will be more consolidation, including acquisitions, and potentially bankruptcies in the restaurant space.
