Tuesday's announcement that fast food name Sonic Corp. (SONC) would be taken private at $43.50 a share was just the latest in a string of restaurant take-outs (pun intended). Last month, Zoe's Kitchen (ZOES) announced it had agreed to be acquired for Cava Group for $12.75 per share. Last February, upscale specialty chain Fogo de Chao was taken out by Rhone Capital for $15.75 a share.
Last year, Buffalo Wild Wings, Ruby Tuesday, Bob Evans, Panera Bread and Popeyes were acquired, and those are just the deals involving publicly traded names. There were a other deals involving private chains.
I'm not sure that the restaurant merger-and-acquisition activity is done just yet, either. The publicly traded restaurant space became very crowded following a slew of initial public offerings (IPOs) the past several years. Many of those stocks struggled, which has provided a prime hunting ground for acquisitions, with some names being taken out on the cheap.
Zoe's, which went public in 2014, is a great example. The deal price of $12.75 a share represented a 33% premium at the time it was announced, but here was a stock that traded in the mid $30s just two years ago. It was a fresh restaurant concept and had great promise. However, that promise has not yet translated to the bottom line. Many investors gave up on Zoe's, and the stock will be acquired rather cheaply. In this case, it was a buyer's market.
There's something else interesting going on here, which is that some acquirers are assembling a portfolio of brands. Inspire Brands, which is acquiring Sonic, is also the parent of Arby's and Buffalo Wild Wings. Popeyes was acquired by publicly traded Restaurant Brands International Inc. (QSR) , which also owns Tim Horton's and Burger King.
Perhaps the granddaddy acquirer of them all, Luxembourg-based JAB Holdings, counts among its acquired restaurant brands former public companies Panera, Peet's Coffee and Tea, Krispy Kreme Doughnuts and Einstein Noah. JAB in June also bought Pret a Manger, and also counts Keurig Green Mountain among the private companies it has acquired.
Golden Gate Capital, which acquired Fogo de Chao, also owns Red Lobster (acquired from Darden Restaurants Inc. (DRI) in 2014) and California Pizza Kitchen.
I think we may see more of the same. There's a lot of cash to be spent these days, and rising consumer confidence should have restaurants hopping. Last November, I suggested three restaurant names that might make interesting acquisition targets; one of them was Zoe's. One of the others was Fiesta Restaurant Group Inc. (FRGI) , which was drawing some activist ire at the time but has had a nice run since.
The other, Cracker Barrel Old Country Store Inc. (CBRL) , has traded flat since 2017 yet remains one of the cheaper names in the sector at 15x next year's consensus estimates. It also yields 3.4% (excluding the special dividend) and owns a compelling real estate portfolio. It still would not surprise me if someone ultimately made a run at Cracker Barrel. The company does have a poison pill that was put in place in 2015 to prevent Biglari Holdings Inc. (BH) , which currently owns just under 20% of the company, from getting control. Still, at the right price, anything is possible.
