The year in mergers and acquisitions in the restaurant industry wasn’t a good one, at least if you measure it in terms of big deals.
No acquisition in 2015 even came close to the size of the 2014 merger of Burger King and Tim Horton’s. Nothing even approached the size of Golden Gate Capital’s acquisition that year of Red Lobster.
But that doesn’t mean this wasn’t a big year for deals. It was a big year; the acquisitions and investments were simply smaller.
In fact, perhaps the year’s more significant story from a merger and acquisition front is on the money being poured into small, upstart concepts. Several private equity firms, and even a few venture capitalists, put money into small concepts they hope will disrupt the restaurant industry.
KarpReilly LLC, the private equity firm that took Habit Restaurants Inc. public in November 2014, made three such investments this year, in the 14-unit Fitlife Foods, the 9-unit Taylor Gourmet and the 14-unit Eureka! Restaurant Group LLC.
The investments in these emerging companies are for minority positions, meaning that existing owners keep control. Some of the investors that have invested in these companies this year traditionally prefer control investments, but changed that strategy to get in on the ground floor of something that could be special.
That includes Roark Capital Group, the Atlanta-based private equity firm that in recent years bought such giants as Arby’s and CKE Restaurant Holdings Inc. This year the firm invested in Naf Naf Grill, which at the time had just 13 locations.
Part of this shift is because of the market for initial public offerings. Public investors are giving high valuations to growth chains that go public, and they’re willing to give these valuations to small concepts. Those higher valuations have increased the prices for companies that would otherwise be sold to private equity groups.
As such, investors looking for growth are targeting smaller and smaller concepts.
There’s also the sense that some of these concepts could change the restaurant industry by disrupting traditional restaurants or proving customers will eat healthful, fresh food. And that’s bringing in some venture capitalists.
Revolution Growth — a fund started by former America Online CEO Steve Case — made investments in two such concepts. One of its investments is Sweetgreen, a healthy fast-casual concept based on Washington D.C. that received $35 million, on top of previous rounds totaling $40 million.
Another is Cava Mezze Grill, which received two funding rounds this year totaling $61 million. The private equity firm Invus, Cava’s existing partner Swan & Legend Partners as well as Revolution Growth invested in the chain.
Funders in these concepts aren’t just traditional investors. Whole Foods Market Inc. this year invested in growth chain Mendocino Farms. And organic foods company Hain Celestial Group Inc. partnered with private equity group Catterton to invest in the salad chain Chopt.
Maybe the most talked-about deal of the year, however, came from a retailer, Urban Outfitters Inc., which bought the Vetri Family group of restaurants, and has plans to grow the three-unit Pizzeria Vetri.
Franchisees most active on merger and acquisition front
There were several traditional deals this year. Levy Acquisition Corp., a “blank check” company led by Chicago restaurateur Larry Levy, bought the 550-unit Del Taco in a deal that valued the chain at $500 million. Del Taco went public as part of that reverse merger.
Philippines-based quick-service operator Jollibee Foods Corp. bought a 40 percent stake in the Denver-based fast-casual burger chain Smashburger, valuing that concept at $335 million. Jollibee had long wanted a U.S. chain it could grow. The private equity group Sentinel Capital Partners bought fast-casual Italian brand Fazoli’s.
Another private equity group, York Capital Management, bought the casual-dining chain Houlihan’s. One of the investors in that deal was Mike Archer, the former president of Applebee’s Neighborhood Grill & Bar who will be CEO of that chain.
Some multi-brand concepts got bigger in 2015. Kahala, the franchisor that operates Blimpie, Cold Stone Creamery and several other brands, acquired three more: Planet Smoothie and Tasti D-Lite in one deal, and the smoothie chain Maui Wowi in another.
Another is Food Management Partners, which is based in San Antonio and has been buying up small and troubled brands. It bought Catalina Restaurant Group Inc. in March. And followed that up with an acquisition of Ovation Brands Inc. in August.
Perhaps the most activity on the merger and acquisition front came from franchisees, as large operators continued to grow larger.
There were dozens of such deals. But here are two that are notable: Sun Holdings Group, a large multi-concept franchisee out of Dallas, bought 84 Burger King units in Texas, for instance. And Flynn Restaurant Group LP, San Francisco-based operator of Applebee’s and Taco Bells, added Panera Bread to its portfolio with the acquisition of 47 locations in Northern California and Seattle.
Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze
