With the $11.3 billion acquisition of Dunkin’ Brands Group Inc. announced late on Friday, Inspire Brands has entered the increasingly competitive breakfast daypart and coffee categories. Analysts have described the deal — Inspire Brands’ fourth acquisition in four years — as a “good strategic match” that will help the company diversify and globalize its portfolio.
Dunkin’ Brands’ stock was up 6.2% on Monday in response to the $106.50-per-share deal that takes the Dunkin’ and Baskin-Robbins brands private.
Talks between Roark Capital Group-backed Inspire Brands and Dunkin’ Brands began before the pandemic, according to The Wall Street Journal, but the onset of COVID-19 complicated negotiations, particularly since Dunkin’s breakfast sales took a major hit when customers began working from home en masse and daily commutes disappeared.
According to Key Blanc analysts, the merger not only allows Inspire Brands to enter both the breakfast and coffee markets, but it would also add a consumer goods platform to their portfolio as well as “a rapidly evolving digital infrastructure, and an international presence in over 60 countries.”
Dunkin’ Brands has invested heavily in recent years in its digital presence, improving both its app and drive-thru technology to make for a better experience for the modern customer. Technological investments like the mobile and drive-thru-forward Next Generation stores, which were introduced in 2018, and more recently, their test of an Amazon Go-style no-checkout store in September will be added to the Inspire Brands repertoire.
“We believe Inspire will help drive continued progress on key technology initiatives to take the brand to the next level,” Jefferies Global Markets equity research analysts Andy Barish, Alexander Slagle and Marshall Pittman said in their Sunday analysis of the Inspire/Dunkin’ deal.
Jefferies’ analysts also believe that the merger will lead to opportunities for brand collaboration between the fan-favorite Dunkin’ Brands and Inspire companies like Buffalo Wild Wings and Sonic.
With Dunkin’s strong international presence, Inspire Brands will be able to expand their franchise base on a more global scale.
“Many of Dunkin’s international markets are operated by master franchisees that can presumably help accelerate development of Inspire's existing brands,” Cowen equity research analysts said in their analysis, adding that Dunkin’s strength in digital engagement and and loyalty (with 5.4 million active loyalty program members as of Q3 2020), will help create a strong foundation for Inspire Brands’ future.
But the merger between Dunkin’ and Inspire will also be a symbiotic relationship, particularly in the technology development sector.
“Both companies have spent quite a bit of money on technology and this [merger] will allow for more initiatives to come forth,” Fred LeFranc, restaurant consultant and CEO of Results Thru Strategy, Inc. said. “Arby's leveraged kitchen technologies are part of their turnaround. The days of technology being an afterthought are over.”
Of course, the biggest immediate change for Dunkin’ will be the privatization of its brands. LeFranc believes that this will be an advantage for Dunkin’ Brands’ growth.
“Any time one gets off of the public company train it is a good thing, especially if the days of 20+ growth are behind a brand,” LeFranc said. “This will give Dunkin the time they need to continue retooling their brand, which is easier to do privately versus publicly.”
Inspire Brands was formed in February of 2018 when Arby’s acquired Buffalo Wild Wings, which already owned Rusty Taco.
Inspire bought Sonic in December of that year, and Jimmy John’s followed in fall 2019.
Cowen analysts said that given the sheer size of the merger with Dunkin’, that there could be a “near-term pause” of mergers and acquisitions for Inspire Brands as the company settles into its leadership in quick-service burger, coffee, sandwich, and casual-dining categories.
“Adjacent categories like quick-service pizza appear to be logical extensions over time,” Cowen predicted.
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