Over the next few weeks, Nation’s Restaurant News will publish its annual Top 100 and Second 100 issues, providing a unique look at the restaurant industry’s largest chains and companies, the fastest-growing brands, the industry’s highest-grossing per-unit volumes and the market shares of various segments. It is a census unlike any other.
What is most interesting this year, however, is the incredible amount of merger-and-acquisition activity, the vast instances of changed ownership and the heightened level of private-equity money now flooding the industry. It isn’t a new phenomenon, and Nation’s Restaurant News has reported in detail the hyperactive deal making of the past two years. But to see a history of the majority of transactions all in one issue—to be able to follow the money—is quite illuminating.
And for better or worse, all arrows point to a continued spurt of deal making in the restaurant industry through this year. Outback Steakhouse parent OSI Restaurant Partners Inc. finally was able to push through a going-private buyout with an expected close later this month. Sources have indicated that Applebee’s International Inc. is close to an announcement about its own future, after the company had admitted that numerous private-equity firms have expressed interest in the parent company of the nation’s largest casual-dining chain.
Back Yard Burgers just announced a private-equity-led buyout that had been in the works for almost a year. Plus, no fewer than five private-equity firms have told me during the past month that they are each “this close” to announcing new deals in the restaurant space.
A recent study from Goldman Sachs that tracked 694 hedge funds with $888 billion in equity found that the “average” hedge fund favors investments in small-cap stocks, which many restaurant brands qualify as. Hedge fund activity in a company can typically be a precursor to a sale of the entity or some other large restructuring—just recall McDonald’s, Wendy’s and CBRL Group, to name a few.
According to the survey, Krispy Kreme Doughnuts Inc. is one of the top 50 stocks showing the largest increase in hedge fund “concentration,” or ownership, with 33 hedge funds owning 32 percent of the company’s equity as of May 31. That was a 13-percent increase in hedge fund ownership from December 2006, the study showed.
Jamba Inc., the parent to the Jamba Juice chain, had 20 hedge funds that owned 50 percent of its equity as of May 31, the study said, making it one of the 10 highly hedge-fund-concentrated stocks in the $100 million to $500 million market capitalization range.
Could Krispy Kreme and Jamba be under-the-radar deals, or do these hedge funds just believe the companies are good investments? Only time—and next year’s Top 200—will tell.