The 2001 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:

1. The category of buyer (franchiser acquiring franchisee, foreign company, operator buying unrelated concept, public shareholders, present owner acquiring more stock, etc.).
2. Asset acquired (capital stock, assets, expansion rights, etc.).
3. Reason the seller was selling the target (financial difficulty, divestiture, cash for expansion, pay down debt, etc.).
4. Industry segment (burger, chicken, pizza, family, cafeteria, etc.).
5. Principal reason the buyer acquired the target (investment, conversion, new concept, etc.).
6. Geographical region of target company.

Because the vast majority of the transactions are 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 2000 and 2001.

2001 Census Overview
The Census captured 81 announced transactions, 39% below the 2000 level. Public market transactions (IPOs and secondaries) were 57% higher last year, but still well below the record 1996 level. Approximately 86% of the activity was recorded in the private market, also below that recorded in 2000.

TYPE OF BUYER
Operators acquiring an unrelated or new concept continued to lead the Census with 23% of all activity. Four IPO filings, six secondary offerings, and one public corporate spinoff were recorded. With low public market values, equity funds and management groups were able to complete transactions at relatively low valuations. Nearly 25% of all non-public transactions involved franchisees and franchisers acquiring units in their own concept.

TYPE OF DEAL
In 84% of the private transactions, sellers insisted upon payment in cash, up slightly from 2000. 50% of the non-public market transaction sellers chose to sell stock rather than assets, up from recent years. Nine transactions involved public companies going private.

	2001	%	2000	%
Stock	46	56.8	60	45.5
Assets	31	38.3	72	54.5
Rights/Options	4	4.9	0	0.0
	81	100.0	132	100.0

REASON FOR THE SALE
Divestitures of chains controlled by individuals or investment groups were much more prevalent than spinoffs by large restaurant chains. Companies in financial trouble had difficulty finding buyers at suitable prices. Public offerings listed a reduction of debt as the major reasons for the sale of their stock. Continuing the trend established two years ago, nine public companies went private, more than twice the number that went public.

	2001	%	2000	%
Divestiture	35	43.2	62	47.0
Debt reduction	13	16.1	8	6.0
Financial trouble	12	14.8	43	32.6
Expansion of concept	9	11.1	12	9.1
Take private	9	11.1	6	4.5
Management succession	3	3.7	0	0.0
Unknown	0	0.0	1	0.8
	81	100.0	132	100.0

INDUSTRY SEGMENT
The ethnic segment led the Census for the first time in many years. Midscale restaurants posted a decline as financing for larger sized units diminished. Many of the companies taken private were quick service concepts, specifically in the sandwich segment. Full service concepts decreased their share of the number of transactions captured; however, over 50% of all transactions were in QSR.

REASON FOR THE PURCHASE
Acquiring a new growth concept remains the most frequent reason given by buyers. In 20% of all private transactions, shareholders chose to buy other shareholders’ interest in the same company. Prompted by adequate franchisee financing, many franchisees expanded their territories with their own concept.

GEOGRAPHICAL REGION OF TARGET COMPANY
For the third year in a row, the Southern region lost ground to the Western region. As in prior years, foreign buyers have not been attracted to restaurant chains in the U.S.

Region	2001	%	2000	%
South	27	33.3	48	36.4
West	25	30.9	36	27.3
North Central	15	18.5	23	17.4
Northeast	12	14.8	25	18.9
Foreign/Unknown	2	2.5	0	0.0
	81	100.0	132	100.0

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