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News Release EQUITY FUNDS DOMINATE CHAIN RESTAURANT M&A ACTIVITY
Chicago, April 18, 2006 – The J. H. Chapman Group, L.L.C. has just issued the 2005 Chain Restaurant Merger and Acquisition Census, a comprehensive guide to acquisitions activity in the retail foodservice industry. This investment banking firm, specializing in mergers and acquisitions in the food and restaurant industries, analyzes this information each year and provides a unique perspective on important trends, according to David L. Epstein, the Chapman principal who prepares and analyzes the Census. Chain restaurant merger and acquisition announcements in 2005 decreased to 101, 15% fewer than in 2004 but significantly higher than those recorded in 2003. Twelve public offering announcements, consisting of eight IPOs and four secondaries, were recorded and five companies announced “going private” transactions. Of significant note was the growing number of equity funds interested in the chain restaurant industry. Along with equity-sponsored management buyouts, equity funds accounted for 40% of all private company transactions, up from 24% the prior year. Equity funds were also the most visible bidders in auctions where sellers pit buyers against one another. Some of the announced transactions with equity fund involvement included Duncan Brands, Dave & Busters, Fox & Hound, Claim Jumper and Le Petit Bistro, to name a few. In addition, several equity funds holding restaurant chains found the market ripe for selling those chains with significant future growth potential to other equity funds. For example, American Securities Capital Partners, LLC sold El Polo Loco to Trimarian Capital Partners, Jacobson Partners sold Taco Bueno to Palladium Equity Partners, LLC and Garden Fresh Restaurants was sold by a consortium of equity funds, including Centre Partners and Fairmont Capital, to Sun Capital Partners. The increase in equity fund activity is a direct result of the amount of equity capital available, increased availability of financing, the acknowledgment of restaurant brand value, the availability of qualified management teams and the long-term growth rate for the restaurant industry. The aggressive pricing of the transactions witnessed in 2005 cast a significant chill on strategic or non-financial buyers. Even the valuations of troubled, branded chains increased from prior years. Franchisees and franchisors focused their attention in 2005 on acquiring within their own concept and not diversifying into other concepts. Even franchisees who traditionally have been looking for other brands to own opted rather to exercise franchise development agreements with other brands instead of looking for acquisition candidates. As in prior years restaurant operators looking for buy-to-convert assets felt unable to justify the high costs associated with these assets. Epstein commented that the Summary Census Report, with graphs and charts, may be obtained from the firm and that he welcomes questions and discussion. The J.H. Chapman Group is the food industry’s leading investment banking firm, with offices in Chicago and Paris, offering a full range of financial advisory services in the United State and internationally The Chain Restaurant Merger and Acquisition Census has been compiled annually since 1987 and lists over 1,950 announced transactions. The J.H. Chapman Group web site, www.jhchapman.com, contains many charts and graphs for this and previous Census reports.
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