Nation’s Restaurant News – 2018 Top 200: Deal-making alters company rankings

Merger-acquisition landscape remains attractive into 2018

Ron Ruggless | Aug 22, 2018

This is part of the Nation’s Restaurant News annual Top 200 report, a proprietary ranking of the foodservice industry’s largest restaurant chains and parent companies.

Mergers and acquisitions again changed the complexion and makeup of this year’s Nation’s Restaurant News top foodservice company rankings, and the deals continued into this year as well.

Merger and acquisition activity in the census, which included 2017 deals, crossed segments and size, ranging from JAB Holding Co.’s $7.5 billion buyout of fast-casual bakery-cafe brand Panera Bread Co. to Darden Restaurants Inc.’s $780 million purchase of Cheddar’s Scratch Kitchen from private-equity owners.

And the activity has continued into 2018, with Roark Capital Group closing in February on the $2.9 billion acquisition of casual-dining Buffalo Wild Wings Inc. by Roark-affiliated Arby’s Restaurant Group Inc.

“In my view, the Panera buyout by JAB in April 2017 and the Buffalo Wild Wings purchase by Roark, via its Arby’s entity, in November 2017 were highly significant and stand out among the large amount of merger and acquisition activity of late,” said John Gordon, principal in the San Diego, Calif.-based Pacific Management Consulting Group.

Scott Olson/iStock/Getty Images Plus

JAB Holding Co.’s acquisition of Panera Bread was the largest deal among many in 2017 tracked by Nation’s Restaurant News.

And Gordon said still favorable, though increasing, interest rates and a hunger for growth on a global scale are helping fuel the merger and acquisition activity.

“The general driving forces behind restaurant M&A remain robust, principally because larger strategic buyers look to acquire brands that have been established and can grow more quickly than building them from square one,” Gordon explained.

“In addition, the cost of debt, while a bit higher in 2017 and 2018 than the very-low cost years prior to 2016, is still favorable,” he said.

Courtesy of Cheddar’s Scratch Kitchen

The acquisition of Cheddar’s contributed to Darden’s double-digit growth in estimated Latest-Year revenue.

Private investment firms are also adding money to the M&A fire.

“Many private-equity funds have available funds from investors seeking a return,” Gordon said. “Also there has been the growth of the global restaurant-brand integrators — like JAB and Restaurant Brands Inc. [backed by the 3G firm] — following in the pathway of Yum! Brands, to gain worldwide scale and scope.” JAB is based in Luxembourg and RBI in Oakville, Ontario, near Toronto.

The biggest M&A deal of 2017 was the JAB acquisition of St. Louis, Mo.-based Panera Bread, which took the longtime publicly traded company into private hands.

Gordon said that deal “was significant because it displayed further development of the JAB Group as a huge privately held restaurant and coffee/consumer products player, as well as recognized the goal of [Panera] CEO Ron Shaich to avoid the rigors and ‘shortsighted nature and demands’ of stock activists.”

Gordon said Panera and Buffalo Wild Wings were at different positions in their businesses at the time of the deals.

“Panera was very strong and growing at time of acquisition,” he said.

Whereas “Buffalo Wild Wings was in a downturn and was in the immediate aftermath of a painful board proxy battle. The long-time CEO had opted to retire and faced a leadership and market momentum void. It was the just in time solution, in my opinion.”

Merger and acquisition impact on company foodservice revenue in the Latest Year was considerable. Orlando, Fla.-based Darden Restaurants, for example, in its Latest-Year saw estimated U.S. revenue increase by 12.7 percent, with much of that gain from a projected $664.1 million in sales from earlier purchase Cheddar’s.

Among other notable foodservice mergers and acquisitions that have or will have an impact on company revenue:

  • Paris-based Sodexo, after the close of its Latest Year in December 2017 acquired the Centerplate contract-management firm from Olympus Partners for $675 million. Centerplate, with estimated Latest-Year U.S. foodservice revenue of about $790 million, could significantly bolster Sodexo’s balance sheet going forward.
  • JAB, in addition to its Panera acquisition, acquired through an affiliate in October 2017 the 270-unit Bruegger’s Bagels bakery-cafe chain from Groupe Le Duff S.A.-affiliate Le Duff America Inc. The company also acquired, through its Panera LLC affiliate, the 304-unit Au Bon Pain bakery-cafe chain held by LNK Partners LLC. And in May of this year, it agreed to acquire Pret A Manger, a London-based bakery-cafe chain, with about 530 locations worldwide, including about 90 in the United States.
  • Houston-based Fertitta Entertainment Inc. in August acquired for $57 million the Joe’s Crab Shack and Brick House Tavern & Tap chains out of bankruptcy from J.H. Whitney affiliate Ignite Restaurant Group Inc.
  • Private-equity firm Olympus Partners in January sold Overland Park, Kan.-based NPC Restaurant Holdings Inc., a franchisor of Pizza Hut and Wendy’s restaurants in the United States with reported Latest-Year revenue of $1.36 billion, to a privately owned joint-venture group that included Los Angeles-based Eldridge Industries.
  • Jack in the Box in March completed its sale of Qdoba to Apollo Global Management in a $305 million cash deal. Affiliates of New York-based Apollo, which also owns the parent companies of the Chuck E. Cheese’s and Peter Piper Pizza dining-and-entertainment brands, gained more than 700 owned and franchised Qdoba restaurants in the U.S. and Canada. In fiscal 2017, the Qdoba brand generated systemwide sales of more than $820 million.
  • Restaurant Brands International, parent to the Burger King and Tim Hortons brands, completed its $1.8 billion acquisition of publicly traded Popeyes Louisiana Kitchen Inc. in March 2017, adding more than 2,600 quick-service restaurants to it portfolio. RBI’s Latest-Year revenue includes an estimated $184.1 million in post-acquisition U.S. sales and franchising income from Popeyes.
  • Irving, Texas-based Del Frisco’s Restaurant Group Inc., parent to the Double Eagle, Del Frisco’s Grille and Sullivan’s Steakhouse concepts, in June acquired for $325 million the Norwalk, Conn.-based Barteca Restaurant Group and its 15 Barcelona Wine Bar and 16 Bartaco full-service restaurants. Barteca, as a freestanding company, had reported Latest-Year U.S. foodservice revenue of $128.2 million.
  • Private-equity deals continued to alter the parent-company landscape, including several over the past year by New York-based Sentinel Capital Partners LLC. In December, Sentinel   acquired from Centre Partners Management LLC the 531-unit Captain D’s and 49-unit Grandy’s limited-service chains. The Sentinel acquisition was offset by the February sale of the 350-unit Huddle House family-dining chain to Elysium Management and the April 2017 sale of Checkers and Rally’s Hamburgers chains, with a combined 850 units, to Oak Hill Capital Partners for $525 million.
  • Cerberus Capital Management L.P. in January 2017 acquired out of bankruptcy the Garden Fresh Restaurant Corp., parent of the Sweet Tomatoes and Souplantation buffet chains, previously controlled by Sun Capital Partners. Those chains previously were controlled by Sun Capital Partners. In a quick flip, Cerberus, in August 2017, sold Garden Fresh to investor groups led by Perpetual Capital Partners, which now owns controlling interest.