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Here's Why the Restaurant Industry Is Busy with M&A Activity
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The U.S. restaurant space failed to entice investors over the past few quarters in spite of economic growth, lower energy prices and higher income. Consumers increased their spending only modestly on dining out, which resulted in low consumption. The situation took a turn for the worse, thanks to higher health care costs and tightened credit availability in the U.S. Evidently, same-store sales growth was dull in a difficult sales environment. Traffic too was weak.
In fact, the fourth quarter of 2016 marked the fourth consecutive quarter of negative comparable sales (comps) for the restaurant industry as a whole, thereby continuing the somber mood.
Consolidation has thus become the name of the game to survive in the prevailing restaurant recession. Evidently, though it’s just the fourth month of the year, we have already witnessed four noteworthy M&As in the restaurants space.
Notably, another vital rationale behind these consolidations is rising labor expenses and other costs. Now that the Affordable Care Act is here to stay, restaurateurs could be looking to increase scale of operations so as to benefit from economies of scale. Additionally, consolidation is convenient for overseas expansion.
Deals so Far
Last week, Panera Bread Company inked a definitive merger agreement with JAB Holdings Company. Per the agreement, JAB Holdings will acquire Panera for $315 per share in cash, in a transaction valued at roughly $7.5 billion, including $340 million of net debt. Notably, the deal is slated to close in the third quarter of 2017, subject to shareholder and regulatory approvals.
Among other things, the food conglomerate’s portfolio of brands made it well-suited to dig into Panera. Meanwhile, the acquisition could provide the bakery café chain with easier expansion opportunities in Europe and beyond.
In March, Darden Restaurants, Inc. (DRI - Free Report) , whose portfolio includes the likes of Olive Garden and Longhorn Steakhouse chains, announced the acquisition of the casual dining chain, Cheddars Scratch Kitchen, in an all-cash deal worth $780 million. Darden believes that this addition will allow it to further fortify two of its most vital competitive advantages -- considerable scale as well as wide-ranging data and insights -- going forward.
Notably, in February, Restaurant Brands International, Inc. (QSR - Free Report) , the parent company of Burger King and Tim Hortons, purchased Popeyes Louisiana Kitchen for $79.00 per share in cash, or $1.8 billion. The acquisition of Popeyes will add a booming, highly regarded brand to Restaurant Brands that has a distinctive position within a compelling segment along with strong customer loyalty and riveting prospects for growth in the U.S. and internationally.
Meanwhile, in order to drive continued long-term growth, Bob Evans Farms, Inc. announced that it has entered into a definitive agreement for the sale of Bob Evans Restaurants to an affiliate of Golden Gate Capital, in January. At the same time, the company announced the acquisition of Pineland Farms Potato Company for $115 million.
The bringing together of assets, management, personnel and other resources of the two organizations helps in creating sizeable near- and long-term synergies by expanding the scale and diversifying the reach of operations.
Thus, given the benefits, we expect to see more M&A activity in the restaurant space in the near future.
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While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
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Here's Why the Restaurant Industry Is Busy with M&A Activity
The U.S. restaurant space failed to entice investors over the past few quarters in spite of economic growth, lower energy prices and higher income. Consumers increased their spending only modestly on dining out, which resulted in low consumption. The situation took a turn for the worse, thanks to higher health care costs and tightened credit availability in the U.S. Evidently, same-store sales growth was dull in a difficult sales environment. Traffic too was weak.
In fact, the fourth quarter of 2016 marked the fourth consecutive quarter of negative comparable sales (comps) for the restaurant industry as a whole, thereby continuing the somber mood.
Consolidation has thus become the name of the game to survive in the prevailing restaurant recession. Evidently, though it’s just the fourth month of the year, we have already witnessed four noteworthy M&As in the restaurants space.
Notably, another vital rationale behind these consolidations is rising labor expenses and other costs. Now that the Affordable Care Act is here to stay, restaurateurs could be looking to increase scale of operations so as to benefit from economies of scale. Additionally, consolidation is convenient for overseas expansion.
Deals so Far
Last week, Panera Bread Company inked a definitive merger agreement with JAB Holdings Company. Per the agreement, JAB Holdings will acquire Panera for $315 per share in cash, in a transaction valued at roughly $7.5 billion, including $340 million of net debt. Notably, the deal is slated to close in the third quarter of 2017, subject to shareholder and regulatory approvals.
Among other things, the food conglomerate’s portfolio of brands made it well-suited to dig into Panera. Meanwhile, the acquisition could provide the bakery café chain with easier expansion opportunities in Europe and beyond.
In March, Darden Restaurants, Inc. (DRI - Free Report) , whose portfolio includes the likes of Olive Garden and Longhorn Steakhouse chains, announced the acquisition of the casual dining chain, Cheddars Scratch Kitchen, in an all-cash deal worth $780 million. Darden believes that this addition will allow it to further fortify two of its most vital competitive advantages -- considerable scale as well as wide-ranging data and insights -- going forward.
Notably, in February, Restaurant Brands International, Inc. (QSR - Free Report) , the parent company of Burger King and Tim Hortons, purchased Popeyes Louisiana Kitchen for $79.00 per share in cash, or $1.8 billion. The acquisition of Popeyes will add a booming, highly regarded brand to Restaurant Brands that has a distinctive position within a compelling segment along with strong customer loyalty and riveting prospects for growth in the U.S. and internationally.
Meanwhile, in order to drive continued long-term growth, Bob Evans Farms, Inc. announced that it has entered into a definitive agreement for the sale of Bob Evans Restaurants to an affiliate of Golden Gate Capital, in January. At the same time, the company announced the acquisition of Pineland Farms Potato Company for $115 million.
While Darden, Restaurant Brands and Bob Evans Farms carry a Zacks Rank #2 (Buy), Panera Bread currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bottom Line
The bringing together of assets, management, personnel and other resources of the two organizations helps in creating sizeable near- and long-term synergies by expanding the scale and diversifying the reach of operations.
Thus, given the benefits, we expect to see more M&A activity in the restaurant space in the near future.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' secret trade>>
Want to hear more about one of the recent restaurant buyouts? Check out the latest Friday Finish Line; the sale of Panera Bread is a featured story!