The 2007 Chain Restaurant Merger & Acquisition Census
2007 Census Overview
The Census captured 112 announced
transactions, 5% more than in 2006. Seven
public and eight going private transactions
were recorded continuing the strong interest
in the public market early in the year. Equity
funds and management teams again bought
heavily into the industry this year accounting
for 37% of all private company transactions,
up from 30% last year. Brand diversification,
which accounted for 34% of all non-public
offering transactions, remained a paramount
objective among operators.
The Chain Restaurant Merger and
Acquisition 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 is
headquartered in the United States and
has at least four separate foodservice
establishments of the same or different
concept. Qualifying candidates include
quick service, fast casual, full service and
cafeteria/buffet 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:
- The category of buyer (franchiser acquiring franchisee, foreign company, operator buying unrelated concept, public shareholders, present owner acquiring more stock, etc.)
- Asset acquired (capital stock, assets, expansion rights, etc.)
- Reason the seller was selling the target (financial difficulty, divestiture, cash for expansion, pay down debt, etc.)
- Principal reason the buyer acquired the target (investment, conversion, new concept, etc.)
- Geographical region of target companies
- Industry segment (burger, chicken, pizza, family, cafeteria, etc.)
Because the vast majority of the transactions
are private and confidential, purchase price
information is normally unavailable. While
this information is useful, some buyers
and sellers do not allow publication of this
information in the Census.
Information is compared with prior
years to assist in identifying trends. The
following information summarizes and
compares the key statistics of the Census
for 2006 and 2007.
Type of Buyer
Equity funds and restaurant operators buying a new concept led with the largest number of transactions as has been the case in the last few years. Franchisees continued their trend of purchasing units within their brand, many from their franchiser. As credit tightened in the later months, values seemed to drop, allowing management teams to buy their company. Public market activity continued to decline as other funding alternatives became more available and attractive.
Geographical Region of Target Company
The Northeast region had the largest increase in activity from last year, yet the Southern region continued to host the largest number of transactions. As in the last two years, the North Central region posted the largest decline in number of transactions. Foreign transactions were less attractive as U.S. buyers felt the decline in the value of the dollar in world markets.
Industry Segment
The Midscale Casual segment had the most announced transactions this year. Six Mexican, two Italian and three Asian transactions were counted in the Ethnic segment. CKE announced the sale of seven Hardees transaction in the Burger segment.
Reason for the Sale
As in most of the prior years, relatively few large chains diversified through new brand acquisitions. There were several announced divestitures through both public market spin-offs and outright sales. Early in the year several concepts owned by private equity firms tested the market. The sale of troubled chains nearly doubled from last year. Eight public companies announced actions to go private.
Type of Deal
The significant increase in the number of asset purchases reflects a shift to a buyer’s market and the increase in the number of troubled company transactions. This trend is expected to continue as declining same store sales and lower returns prompt owners to give in to buyers’ requirements. In 92% of the non-public market transactions, sellers received payment in cash.
Reason for the Purchase
The decline in value due to the tight lending environment and weakness in same store sales allowed strategic buyers to raise their interest in restaurant chain acquisitions. Lenders kept the lending faucet open to franchisees interested in buying other franchisees. Several equity funds entered the industry by acquiring minority interests through private placements. Many franchisers divested company operated territories to new and existing franchisees.
David L. Epstein can be contacted at depstein@jhchapman.com and at (773) 693-4800.
