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News Release NEAR RECORD CHAIN RESTAURANT M&A ACTIVITY March, 2005 – The J. H. Chapman Group, L.L.C. has just issued the 2004 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. Merger or acquisition announcements in 2004 increased to 119, a substantial 53% increase over 2003. Public offering announcements increased from four to 13, still far short of the record 35 set in 1996. Two small public companies went private, capitalizing on the low public valuation of small restaurant chains. Transactions involving financially troubled chains rose to 24 in 2004 from 19 the previous year, as high debt levels and soft earnings continued to force many bankruptcy filings. There is a strong trend among buyers to acquire new growth concepts as a significant part of their expansion strategies. This diversification trend led the Census with 33% of the buyers stating it as the reason for their purchase, followed by 23% listing the quality of the investment opportunity as the principal reason. The primary seller’s reason for selling was that their chains no longer met their objectives, which was cited for 56% of the transactions. Examples of established chains acquiring new concepts included the Bob Evans Farms, Inc. purchase of the 81 unit Mimi’s Café, Yum Yum Donuts purchase of the 200 unit Winchell’s Donut House, and Real Mex Restaurants purchase of 106 unit Chevy’s. Notable among the increased activity in 2004 was the larger number of management buyouts and equity funds acquiring both troubled and undervalued chains. Equity funds participated in 17 transactions and management buyouts totaled eight transactions, both up significantly from the previous year. Examples of equity fund transactions include Charlesbank Capital Partners’ purchase of Captain D’s Seafood, Crescent Capital Investments, Inc.’s purchase of Church’s Chicken, and Roark Capital Corporation’s purchase of Cinnabon. The management teams of Hacienda Mexican Restaurants, Jillian’s Entertainment Corporation, and Timber Lodge Steakhouses were able to become owners of the chains they managed. Both franchisors and franchisees were also very active acquirers in 2004. In 25 transactions, almost double the 13 for 2003, franchisees acquired another franchisee in their own system. Similarly, in 10 transactions, franchisors acquired their own franchisees 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 States and internationally. The Chain Restaurant Merger and Acquisition Census has been compiled annually since 1987 and lists over 1,850 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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