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News Release Chain Restaurant Mergers and Acquisitions Increase Despite Adverse Market Conditions Chicago, March 31, 2009--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 its 2008 Chain Restaurant Merger and Acquisition Census, a comprehensive guide to acquisition 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. "With the significant economic concerns taking its toll on the restaurant industry in 2008, it was surprising to see the high number of transactions that were captured in the Census," stated Epstein. "2008 was a very difficult year to close transactions because of falling sales and profits coupled with the significant decline in acquisition debt capital. This year's Census results demonstrate that even in the current tough economic environment, transactions can be completed." Chain restaurant merger and acquisition announcements in 2008 increased to 116, a 3.6% increase over 2007. While more deals were announced in 2008 than in 2007, the transactions tended to be smaller with fewer large public companies represented. The largest transaction was Triarc's stock-for-stock $2.34 billion purchase of Wendy's International. Also announced was a $1.3 billion going private bid by CEO Tilman J. Fertitta for Landry's Restaurants, which was not completed due, in part, to a lack of financing. A significant increase in franchise brand transactions and chains that were sold because they were in financial trouble also contributed to the larger number of transactions. Several large franchisers announced refranchising programs aimed at streamlining company operations and raising cash. Six transactions involved Pizza Hut franchisees, including four announced purchases by NPC International totaling 345 Pizza Hut units. Applebees recorded six transactions, mainly with sales to existing franchisees. Hardees, a unit of CKE Restaurants, Inc., announced five transactions divesting over 100 locations in the Midwest. Companies deemed to be in financial difficulty totaled 21 announcements, up 31% from last year. Many of these transactions were either lender encouraged or completed under bankruptcy court supervision. Some of the companies in this category included the debt for stock exchange by the creditors of Mrs. Fields Famous Brands; G&R Acquisition, Inc.'s purchase of Max & Erma's; Star Buffet's purchase of Barnhill's Buffet; and MGL Management Group's bid for Krispy Kreme Doughnuts, Inc. Equity funds continued their interest in the restaurant sector, recording 38 announced transactions, a 12% increase from 2007. This category included Kohlberg & Company LLC purchase of Centerplate, Inc.; Golden Gate Capital's purchase of 80% of Macaroni Grill from Brinker International; Sentinel Capital's purchase of 123 Pizza Hut franchised units in California; and LNK Partners' purchase of the 226-unit Au Bon Pain. Buyers of all types acquiring new concepts declined by 14% from 2007, yet this continued to represent the largest single category with 33% of total activity. Generally absent from the list of buyers were the major publicly traded restaurant chains, except for those acquiring or selling franchise locations. Regional chains, however, took the opportunity to diversity and broaden their brand base. Among the companies buying new concepts were G&R's acquisition of Damon's; the catering company Taher, Inc. purchase of the 10-unit Timber Lodge Chain; Repehage Investments, Ltd., the owner of Elephant & Castle, purchase of 13-unit Piccadilly Pubs; and Triarc's purchase of Wendy's International. There were few buy-to-convert acquisitions recorded in 2008, primarily because there were many closed restaurant properties on the market. Only two transactions were recorded in which the buyer indicated that all the units acquired would be converted to their own concepts. Commenting on the outlook for M&A activity in 2009, Epstein noted, "We anticipate that there will be more transactions involving financially troubled companies and several notable public companies will attempt to go private. We also expect that the tight capital situation which exists today will improve somewhat by the end of the year or early 2010 which should allow more traditional merger and acquisition activity." Epstein welcomes questions and discussion concerning this year's findings. Click here to view a copy of the 2008 Summary Census Report (PDF), complete with graphs and charts.
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