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News Release Franchisees Lead 2011 Restaurant Deal Activity Chicago, April 20, 2012 − 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 2011 Chain Restaurant Merger & Acquisition Census. This comprehensive annual guide to acquisition activity in the retail foodservice industry, developed and analyzed by Chapman Principal David L. Epstein, provides unique perspectives on important industry trends. Chain restaurant merger and acquisition announcements in 2011 increased to 100, up 12% from the 89 recorded in 2010 and up 49% from 2009. “Chain restaurant M&A transactions continue to increase largely due to franchised restaurant sale activity,” stated Epstein. “In 2011 both franchisors and franchisees announced many more transactions as a percentage of all transactions than in recent years, mainly due to the increase in franchise financing and refranchising programs. Equity fund purchases again contributed significantly to this year’s activity.” Franchise unit transactions were up significantly, representing 46% of all Census-captured transactions. Acquisitions within the buyer’s own brand were up 17% from the previous year. Major contributors to this year’s increase in franchise purchase activity were the Applebee’s refranchising program and several transactions in the Pizza Hut and Domino’s systems. Epstein stated, “Franchisees sought these highly synergistic acquisitions and found lenders willing to support their activity.” Equity funds also approached franchisees, announcing eight transactions in the sector, including Prometheus Partners’ acquisition of 21 Pizza Hut units from Commodore Restaurants, Olympus Partners’ acquisition of NPC International, Golden State Capital’s tender of California Pizza Kitchen, Brentwood Associates’ acquisition of K-Mac Holdings, and Advent International’s management sponsor in the acquisition of 500-unit Bojangles. There also was an increase in international chain acquisitions by domestic equity funds reflecting the belief that foodservice expansion elsewhere will outpace domestic growth. Transactions recorded this year include CVC Capital Partners’ minority purchase of QSR Brands, a 900-unit KFC and Pizza Hut operation in Southeast Asia and India, and Bain Capital Partners’ purchase of 3,700-unit Skylark. Equity funds continued to buy restaurant chain brands, accounting for 25% of all announced private transactions in 2011. Equity funds investing in new concepts included Roark Capital Group’s purchase of 81.5% of Arby’s, Avenue Capital’s debt conversion to equity at Quiznos, and GS Capital Partners’ purchase of Apple American Group’s 269 Applebee’s. Following on last year’s near-record pace, financially troubled restaurant chains contributed 17% of all announced transactions. Many of these companies were purchased through bankruptcy proceedings, most involving prepackaged arrangements. Included in this year’s Census is the debt to equity conversion of Perkins and Marie Callender’s, Victory Park Capital’s acquisition of Chicago-based Giordano’s, and LNC Venture’s purchase of 82-unit Souper Salad. With valuations remaining low, 24 restaurant chain operators reached agreements to add diversification to their existing chain holdings. “Operating multiple restaurant brands seemed to make good strategic sense in 2011, although buyers didn’t venture far from their core operating style,” stated Epstein. This category included Figaro’s Italian Pizza’s acquisition of 40-unit Nick-N-Willy’s Pizza, Landry’s acquisition of McCormick & Schmick’s, and Tavistock Restaurants’ acquisition of 33-unit Back Bay Restaurant Group. Initial public offering plans announced in 2011 included Ignite Restaurant Group, Chuy’s, Dave & Buster’s and Dunkin’ Donuts. The only Census-recorded announcement for a secondary involved the Castle Harlan and BRS sale of shareholder shares in Bravo Brio Restaurants. Four non-restaurant operating companies entered the industry for different reasons. Morgan Hotel Group acquired 90% interest in The Light Group, which operates restaurants in several Las Vegas hotels; an affiliate of White Cloud Coffee, a coffee roaster, acquired 32-unit Mountain Mudd Coffee; Bella Petrella’s Holdings, a pasta and pizza sauce manufacturer, acquired 37-unit Philly Westshore; and frozen burger patty manufacturer, Bubba Burger, acquired 4 units in Florida from Times Grill. Commenting on the 2012 outlook for M&A activity in the chain restaurant industry, Epstein noted, “The recession produced several exciting new concepts which have proven consumer acceptability, and now need capital to expand. Equity funds continue to have the necessary capital and interest in the industry. We foresee several such investments in 2012 along with purchases of larger chains by both equity funds and strategic buyers. Financially troubled chains and franchisees will again dominate the Census next year. While valuations should increase, price pressure caused by economic uncertainty will continue.” Epstein welcomes questions and discussions concerning this year’s Census findings.
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