Yum! Brands (YUM) recent acquisition of burger restaurant The Habit (HABT) will bring the former into the burger business. YUM already has vast exposure to pizza (Pizza Hut), fast Mexican food (Taco Bell) and chicken (KFC), so this seemingly expands the company's horizons. Yet, in truth, it is a very small acquisition for Yum which is paying $375 million for the 286 location chain, which is heavily concentrated in California (203 locations).
For perspective, consider that YUM already has more than 49,000 locations, and did nearly $5.7 billion in sales last year, versus HABT's 286 locations and $400 million in revenue. In context, the move merely dips YUM's toe into the burger space, and it makes me wonder whether there are more acquisitions to come, and not just in burgers.
If YUM wanted to expand its geographic presence in burgers, it could look toward 500 unit Red Robin (RRGB) , which has a presence throughout much of the U.S., including the Northeast. In addition, RRGB, which has seen its shares fall from the low $90's to the mid $30's since 2015, is once again within activist investor's crosshairs. In July, company shareholder Vintage Capital, had been pushing for a sale.
Perhaps YUM would be interested in Biglari Holdings (BH) , BH-A Steak N Shake, a formerly great brand name that has been a disaster recently. At this point BH should be willing to sell it for a song, and perhaps more experienced operators such as YUM could reinvigorate the chain that BH has been unable to fix. I recently learned that the Steak N Shake location closest to us, which was closed one day after its debut due to a fire, then reopened months later, is now again closed.
If YUM wanted to expand its focus into casual dining, an acquisition of Cracker Barrel (CBRL) could make sense. CBRL has built a solid brand name, owns a lot of real estate, trades at about 15x next year's consensus estimates, and has returned a lot of cash back to shareholders via regular and special dividends the past several years. Any acquisition would have to be friendly however; in 2011 the company adopted a shareholder rights plan in place in order to keep the Biglari Holdings, which it saw as an unfriendly aggressor, at bay. This effectively kept BH's ownership limited to about 20%; more recently BH has sold off CBRL holdings, and now owns 8.3%.
Bloomin Brands (BLMN) , whose brands include Bonefish Grill, Outback Steakhouse, Carrabba's and Fleming's, might also make an interesting play for YUM in the casual dining space. Also in activist investor's crosshairs in recent years, the stock has traded sideways for years, and trades for just 12x next year's consensus estimates.
Finally, if YUM wanted to go big in casual dining, it could make a play for Dine Brands Global (DIN) , parent of Applebee's and IHOP, which has more than 3600 locations. DIN currently trades at about 11.5xX next year's consensus estimates, and has an enterprise value of just over $3 billion.
Regardless of this speculation, I do believe there is more restaurant M&A on the horizon, whether it involves YUM or not. JAB Holdings, which has assembled a whole host of brands including Krispy Kreme, Keurig Green Mountain, Panera, Einstein Noah, Peet's Coffee, and Pret a Manger to name handful, has been quiet lately, at least on the restaurant/coffee front.
