The 2004 Chain Restaurant Merger& Acquisition Census
2004 Census Overview
The Census captured 119 announced transactions, 53% more than in
2003. A near record of thirteen public and two going private transactions
were recorded demonstrating the strengthening in public market activity.
Equity funds and management teams found significant value in the
industry this year accounting for almost one in four of all private
company transactions. As last year, many of this year's transactions
reflect troubled chains sold through court proceedings. The 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 are headquartered in the United States
and have 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 company.
- 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 the key statistics of the Census for 2003 and 2004.
Type of Buyer
While operators acquiring a new concept continued to lead the Census
with 25% of all activity, the most significant increase in activity
was recorded by buyers not in the foodservice industry. Seven IPO
filings and six secondary offerings and public company private placements
were recorded compared to only four such transaction announcements
last year. Buyers related in some way to either the target company
or the concept were very active with eight management buyouts, 25
franchisees increasing the number of units in their existing brand,
eight present owners acquiring more ownership, and in ten situations
franchisers acquiring their own franchisees.
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. Very few foreign buyers were attracted to U.S. restaurant chains despite the favorable currency exchange. Unlike in prior years, domestic multinational chains moved to buy back some of their foreign franchised markets.
Industry Segment
The Burger segment once again led the Census reflecting eleven Burger King transactions. Both quick service and full service Mexican concepts scored the greatest number of transactions among the many ethnic transactions. Sandwich chains, which accounted for approximately 10% of transactions since 2001, dropped below historical levels. Quick service concepts captured almost 57% of all transactions.
Reason for the Sale
Few large chains grew through new acquisitions while several divested marginal brands. Buyers of distressed and bankrupt companies continued to negotiate bargain prices. Public offerings and private equity placements listed the reduction of debt and new unit construction as the major reasons for the sale of their securities. Only two public companies went private, equal to last year.
Type of Deal
The large number of bankruptcy and troubled company sales produced the high percentage of assets sold for cash. In 94% of the non-public market transactions, sellers insisted upon payment in cash, and in 69% of those transactions, buyers chose to buy assets rather than stock. Eleven of the thirteen public market stock and private placement offerings announced were completed.
Reason for the Purchase
Franchisees found their best targets among existing related brand franchisees thus expanding their franchise area. Equity funds and management teams responded to the availability of chains in bankruptcy and a favorable lending environment. In several joint venture or partial ownership situations, buyers saw value in buying out their partners. In one of the slimmest showings in many years, only three buyers listed conversion as their
primary reason for purchase.
