P.F. Chang’s China Bistro was acquired by Centerbridge Partners in July 2012, helping drive the private equity firm's growth in U.S. foodservice revenue.

Robust deal making rearranged the financial might of the Top 100 companies in the past 12 months, shifting revenue among industry players and transforming the list of heavy hitters to include several new entrants even as some longtime players fell away.

As a group the Top 100 companies — ranked on the basis of U.S. foodservice revenue from company-restaurant sales, franchise royalties and other fees — registered $130.2 billion in Latest-Year revenue, up nearly 8.1 percent from the Preceding Year but down from the 9.5-percent growth recorded in the Preceding 12 months.

Private equity firms continued to demonstrate a healthy appetite for restaurant brands, with many trading holdings among themselves, exiting the industry altogether or turning to the stock market to cash out some of their holdings while still retaining control. Refranchising also played a role in shifting corporate fortunes, and some new investors swooped in to capitalize on the consuming public’s desire to dine out.

“The recession proved to some of these companies that even when restaurant systems are under duress, they are still relatively stable cash generators compared with other investments involving products or activities that are not as universally important to consumers as eating,” said Alan J. Liddle, Nation’s Restaurant News managing editor of special projects and senior data analyst for Top 100. He noted that real estate was often part of the attraction, as well.

Major acquisitions pushed revenues up an average of 286.4 percent for the top five companies in terms of revenue growth: Wayzata Investment Partners LLC, Olympus Partners, Advent International Corp., Centerbridge Partners L.P. and Argonne Capital Group LLC.

Data

• Company U.S. Foodservice Revenue
• Growth in Company U.S. Foodservice Revenue

In the same vein, changes in ownership caused several companies to disappear from the Top 100 ranks. Among them are P.F. Chang’s China Bistro Inc., which was acquired by Centerbridge in July 2012; Bank of America Corp., which in December 2011 sold Pizza Hut franchisee NPC International Inc. to Olympus Partners; O’Charley’s Inc., which merged with Fidelity National Financial Inc. affiliate American Blue Ribbon Holdings in February 2012; and Castle Harlan Inc., which lost controlling interest in the Perkins and Marie Callender’s Restaurant & Bakery brands when a bankruptcy court approved the transfer of their ownership to Wayzata.

Compass Group PLC, with estimated U.S. contract foodservice revenue of more than $9.5 billion in the Latest Year, maintained its hold on the No. 1 spot, and Darden Restaurants Inc., with estimated U.S. revenue of $8.4 billion, held the No. 2 spot despite same-store sales challenges at its core Olive Garden and Red Lobster casual-dining brands.

Chipotle Mexican Grill Inc. moved up two spots to the No. 10 position on the strength of a 20-percent increase in its namesake chain’s Latest-Year domestic sales to $2.7 billion. It displaced The Wendy’s Co., which fell to No. 11 as the effects of its sale of the Arby’s Restaurant Group to an affiliate of Roark Capital Group in 2011 were reflected in lower Latest-Year revenue.

The nature of the deals morphing the industry’s companies is changing, according to the 2012 “Chain Restaurant Merger & Acquisition Census” from investment banking firm J.H. Chapman Group LLC.

Of 96 transactions included in J.H. Chapman’s census, franchise unit acquisitions comprised more than one-third of the deals, purchases by equity funds accounted for 27 percent, and operators diversifying their holdings reflected 24 percent of the deals. Meanwhile, 15 percent reflected public market announcements.

“Chain restaurant M&A transactions have leveled off over the past three years as IPO and other growth financing methods increase in frequency,” said David L. Epstein, a principal in J.H. Chapman and author of the census.

“In 2012 there were eight announced chain initial public offering announcements and six public chains going private,” Epstein continued. “At the same time, chain franchisees announced acquisitions of franchised units in 36 percent of all nonpublic transactions.”

Epstein said 90 percent of franchise unit acquisitions occurred within a buyer’s brand, pointing to easier access to capital for proven operators. Revenues reduced by the loss of company-operated stores within such firms as Yum! Brands Inc., Burger King Worldwide Corp. and DineEquity Inc. in this year’s Top 100 reflect this trend.

“It is now more common for franchisee organizations to consider synergistic acquisitions as a key component to their growth strategy,” he said.

For instance, Flynn Restaurant Group LLC — formerly AAG Holdings I LLC — changed its long-running pattern of growth through acquisitions of franchisor and fellow franchisees’ Applebee’s Neighborhood Grill & Bar units by moving into the quick-service arena with its Latest-Year purchase of 76 Taco Bell, KFC and Pizza Hut restaurants. FRG created a new division, Bell American Group LLC, for those units to run alongside its Apple American Group LLC, which operated 438 Applebee’s units at the end of its Latest Year.

Epstein pointed to policies coming out of Washington — such as concerns about costs associated with mandated health care coverage — as possibly having a “chilling effect” on restaurant mergers and acquisitions. However, he said low interest rates and the strong public markets could offset those worries and keep the deals coming throughout 2013.

The Ignite Restaurant Group affiliate of J.H. Whitney & Co. is one of the operator groups overlooking such potential legislation-related peril, as it earlier this year snapped up the 210-unit Romano’s Macaroni Grill from Golden Gate Capital for $55 million. Macaroni Grill will serve as a third development concept, along with the Joe’s Crab Shack and Brick House Tavern Tap chains, and offer conversion opportunities for Joe’s.

“We’re bringing in a massive portfolio of real estate and giving ourselves a lot of strategic alternatives,” Ray Blanchette, Ignite chief executive, told analysts in a post-acquisition conference call in February.

By the numbers

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