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News Release Increased Activity in Chain Restaurant Mergers and Acquisitions Chicago, March 20, 2008 – The J. H. Chapman Group, L.L.C., an investment banking firm specializing in mergers and acquisitions in the food and restaurant industries, has just released the 2007 Chain Restaurant Merger and Acquisition Census, a comprehensive guide to acquisitions activity in the retail foodservice industry. The Census, which provides a unique perspective on important trends, was developed by Chapman principal David L. Epstein, who analyzes and presents this information annually. Chain restaurant merger and acquisition announcements in 2007 increased to 112, five percent more than in 2006. Seven public offerings, consisting of five Initial Public Offerings and two secondaries, plus eight companies “going private” were announced. IPOs included Del Frisco’s Restaurant Group, Spicy Pickle Sandwich Shops, Einstein Brothers Bagels, Tully’s Coffee and Organic To Go. Another significant note was the continuing number of equity funds interested in the chain restaurant industry. Along with equity-sponsored management buyouts, equity funds accounted for 37% of all private company transactions, up from last year. Some of the announced transactions with equity fund buyers included El Pollo Loco, Smokey Bones, Bojangles, Boston Market, Yard House Restaurants and Johnny Rockets, to name a few. The aggressive pricing of the transactions witnessed in 2006 continued through the beginning of 2007, but fell as lenders tightened coverage ratios. “Brand values held for most of the year although repricing was discussed in many transactions,” Epstein explained. “Overall, chain prices are expected to be lower in 2008 causing owners of quality brands to rethink their exit timing.” Strategic buyers, which include existing restaurant chain operations and franchisees acquiring other franchised units, were particularly active with almost 60% of all private company transactions, about the same as in 2006. Operators buying a new brand or concept increased by 33% over 2006 and represented the largest single buyer category. Examples of this diversification strategy included Darden’s acquisition of Rare Hospitality, NexCen Brands’ acquisition of both Pretzel Time and PretzelMaker, Fox & Hound’s purchase of Champps and the IHOP acquisition of Applebee’s. Franchisees and franchisers were less active than in 2006, yet still significant with 23% of all private company transactions. Franchisers opted for divesting units to new and existing franchisees as part of their re-franchising programs. CKE announced the sale of seven Hardee’s transactions in the burger segment. Chains in financial distress represented a larger number of transactions this year with over 14% of all transactions. Most troubled company buyers were other restaurant chains. Commenting on the outlook for M&A activity in 2008, Epstein noted, “We anticipate that the number of transactions will decline as potential sellers focus on operational improvements and buyers search for leverage capital. We also expect more financially troubled chains will be available for purchase.” 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’s website. 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 States and internationally. The Chain Restaurant Merger and Acquisition Census (PDF Version) has been compiled annually since 1987 and lists almost 2,200 announced transactions. The firm’s web site, www.jhchapman.com, contains both the 2007 and previous Census Summary Reports.
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