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The 1999 Chain Restaurant Merger& Acquisition Census Census Criteria The Census reports change of ownership activity for chain restaurants in the United States. In order to be counted in the Census. a meaningful change of ownership must have been announced. The Census does not include routine trades of restaurant securities on a formal exchange, but does include initial public offerings, subsequent stock offerings, significant investments and, of course, traditional mergers and acquisitions. Restaurant chains qualify for the Census if either the acquirer or the target are headquartered in the United States and have at least four separate foodservice establishments of the same or different concept. Qualifying candidates include quick service, full service and limited service firms. The Census lists those transactions which have been announced during the census year. Some of the transactions may not have been completed. The goal of the Census is to provide restaurant executives with comparative industry information to assist in making major strategic growth decisions. In addition to buyer, seller and target names and locations, the Census obtains the following information:
Because the vast majority of the transactions arc private and confidential, purchase price information is normally unavailable. While this information would be useful, some buyers and sellers have been unwilling to share this information for the Census. Information is compared with prior years to assist in identifying trends. The following information summarizes the key statistics of the Census for 1998 and 1999. 1999 Census Overview The Census captured 115 announced transactions. 34% below the 1998 level. Public market transactions (IPOs and secondaries) were about equal to last year, but well below the record 1997 level. Approximately 92% of the activity was recorded in the private market, equal to that recorded in 1998. TYPE 0F BUYER Operators acquiring unrelated concepts lead the Census with 48% of all private transactions. Seven IPOs were recorded and two companies filed for secondary offerings. Franchisees buying others in their concept were proportionately as active as last year. Operators continue to acquire unrelated concepts motivated by brand diversification. Buyout groups and management took advantage of the many divestiture opportunities of brand name chains.
TYPE OF DEAL In 78% of the private transactions, sellers accepted payment in cash, up slightly from 1998. 35% of the non-public market transaction sellers chose to sell stock rather than assets, an 8% decrease from 1998. Many of the stock sales involved stock for stock transactions.
REASON FOR THE SALE In 1999 chains implemented divestiture strategies mainly because of poor operating results, change in focus or refranchising. Down from both 1997 and 1998, only 91% of all non-public transactions were caused by financially troubled sellers. Public offerings listed expansion of the chain's concept followed by a reduction of debt as the major reasons for the sale of their stock.
INDUSTRY SEGMENT The midscale segment dominated the Census with Avado's sale of their Applebee's units. In the pizza segment, Papa John's was an active acquiror while Pizza Hut, Inc. was an active seller. The burger category has lead the Census for many years, however, this year showed significant declines as prior years activities diminished the available chains in this category. In 1998, Boston Chicken purchased most of their franchisees. Quick service concepts continued to lead the Census accounting for 57% of all transactions this year, up from 1998.
REASON FOR THE PURCHASE The search for a new concept remains the most frequent reason given by buyers. For the fourth year in a row, the number of transactions declined where converting units to the acquirors' concept was the main objective. Many management groups and financial buyers acted on the significant undervaluation in the public markets.
GEOGRARHICAL REGION OF TARGET COMPANY The Southern region once again lead all other regions followed by the West. Acquisitions of foreign companies remained low.
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