Sale of Mimi’s Café may be difficult for Bob Evans

The sale of Mimi’s Café could be a challenge for Bob Evans Farms Inc. due to a number of conditions, including the chain's financial struggles and uncertainty surrounding the federal health care mandate, according to industry observers.

The 145-unit Mimi’s is also in bad need of a turnaround, which would likely scare off any public companies as strategic buyers, observers said. However, the Mimi’s concept still has potential for the right buyer who could remake what some described as an “Old World” casual-dining concept into something that will appeal to a new generation of diners.

Though it had been rumored for months that Mimi’s was on the market, Columbus, Ohio-based Bob Evans didn’t officially say it was considering the pursuit of strategic options for the Irvine, Calif.-based chain until last month. Bob Evans is working with financial advisory firm Lazard, the company said.

Now is a difficult time for Mimi’s to be on the market, said many observers. Mimi’s same-store sales were down 5.6 percent for the Oct. 26-ended second quarter, capping 22 consecutive quarters of negative comps.

Bob Evans in November lowered its guidance for the year, saying Mimi’s same-store sales would range between a decrease of 4 percent to a decrease of 1 percent. Earlier, the company had projected same-store sales would range between a decrease of 2 percent to an increase of 1 percent for the year.

Over the past four years, Mimi’s average unit volumes have fallen from $3.3 million to $2.5 million.

One analyst, Christopher O’Cull at Keybanc Capital Markets, speculated in July in a research note that a turnaround for Mimi’s would require store closures, additional capital to refurbish existing stores and the buildout of under-penetrated markets.
 
At the time, O’Cull estimated a buyer would pay around $110 million for Mimi’s, or 4.5 times earnings before interest, taxes, depreciation and amortization, or EBITDA. This week, however, O’Cull downgraded his estimate, saying a buyer would more likely pay $80 million, or four times estimated EBITDA of $20 million for fiscal 2013.

A likely buyer, said O’Cull, is a private equity firm that might be interested in the real estate for conversions. Shedding Mimi’s will be a boon for Bob Evans, he argued, which will be able to devote more resources to the successful remodel program for its namesake restaurants and growth of its packaged goods division.

Earlier this year, Stephen Anderson, senior restaurant analyst for Miller Tabak & Co. LLC, however, aimed a bit higher, estimating that Mimi’s could sell for about $222 million, or five times EBITDA estimates at the time.

Others say the chain will likely go for a deep discount, given Mimi’s needs and the looming threat of costs associated with the Patient Protection and Affordable Care Act.