Chicago, March 13, 2007 – The J. H. Chapman Group, L.L.C. has just released the 2006 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, prepares and presents this information annually, providing a unique perspective on important trends, according to David L. Epstein, the Chapman principal who developed and analyzes the Census.

Chain restaurant merger and acquisition announcements in 2006 increased to 107, six percent more than in 2005. Eight public offerings, consisting of seven Initial Public Offerings and one secondary, plus nine companies “going private” were announced. IPOs included Chipolte Mexican Grill, Carrols, Burger King, Spicy Pickle Sandwich Shops and Gordon Biersch Brewery. Two companies, El Pollo Loco and Logan’s Roadhouse, abandoned their IPO offering for sales to equity funds. “The turbulent relationship between the restaurant industry and the public market was very prevalent in 2006,” Epstein explained in commenting on these announcements.

Another significant note was the increasing number of equity funds interested in the chain restaurant industry. Along with equity-sponsored management buyouts, equity funds accounted for 30% of all private company transactions. Equity funds were clearly the most visible buyers in auctions by sellers seeking the highest bidders. Some of these announced transactions with equity fund buyers included Huddle House, Sbarro’s, Schlotzsky’s, Stir Crazy, Outback Steakhouse, Fazoli’s, and Lone Star Steakhouse, to name a few. 

In addition, several large multi-concept chains divested some non-core brands, including CBRL Group sale of Logan’s Roadhouse, Wendy’s sale of Baja Fresh and Landry’s sale of Joe’s Crab Shack.

The increase in equity fund activity is a direct result of the flood of equity capital available, an improved supply of financing, the recognition of restaurant brand value, the availability of qualified management teams and the long-term growth rate experienced by the restaurant industry. The aggressive pricing of the transactions witnessed in 2005 continued through 2006. Strategic buyers were selective in their acquisitions in 2006, and appear to be more active in competing for acquisitions to expand or extend their operations. They included Buffets, Inc. acquiring Ryan’s, Kahala buying Blimpies, Panera Breads investing in Paradise Bakery & Café and Lee’s Famous Recipe Chicken purchasing Mrs. Winner’s.

Franchisees and franchisers focused their attention in 2006 on acquiring within their own concept rather than diversifying into other concepts. Even franchisees who traditionally looked to own brands opted to exercise franchise development agreements with other brands instead of seeking acquisitions.

As in prior years, those restaurant operators looking for buy-to-convert assets felt less able to justify the high costs associated with purchasing these assets.

Commenting on the growth in the number of transactions, Epstein noted that, “We anticipate that the number of transactions will grow further while the capital and debt markets continue to view the restaurant industry favorably.”

Epstein welcomes questions and discussion concerning this year’s findings. The Summary Census Report, complete with graphs and charts, may be obtained from the firm. The J.H. Chapman Group, the food industry’s leading investment banking firm, with offices in Chicago and Paris, offers 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 2,000 announced transactions. The firm’s web site, www.jhchapman.com, contains both the 2006 and previous Census Reports.