A leading fast-food restaurant saw its shares jump on rumors of a potential takeover by a high-profile investor. The move would follow a busy 2021, which saw several big space deals. Here’s a look at how merger and acquisition activity could shape up in the restaurant industry.
What happened: A new file of Wendy’s Co. MAGNIFYING GLASS have shown that Trian fund management owns 19.4% of Wendy’s with its partners. The fund managed by Nelson Peltz said in the filing that it will explore a transaction that could be a merger or acquisition.
A transaction including Wendy’s would be one of the largest in the restaurant industry in recent years, with a current market capitalization of $3.5 billion.
Other restaurant stocks surged on Wednesday on the heels of Wendy’s potential deal, with more moves possible down the road.
In 2021, jack in the box JACK acquired Del Taco Restaurants, a publicly traded Mexican food company.
International restaurant brands RSQ acquired the private company Firehouse Subs.
Here’s a look at some restaurant stocks that could spark interest in mergers or acquisitions.
1. Daddy Johns: pizza chain Papa John’s International PZZA has been a takeover candidate for years, with its former founder even suggesting he would buy the company. The chain is often mentioned because pizza is a part of the restaurant business that has seen decent growth despite being a highly competitive market.
In the recently released first quarter, Papa Johns reported revenue of $542.7 million, up 6% year-over-year. Along with the revenue growth, the chain said it opened 62 net new units in the quarter and raised its restaurant opening plans. For fiscal year 2022, Papa Johns expects 280 to 320 units to open. Going forward, the chain is now aiming for annual net unit growth of 6-8%. This includes an agreement to open more than 1,350 stores in China through a new partnership.
Papa Johns ended the first quarter with 3,127 restaurants in the United States and 2,170 in international markets. The company has 608 company-owned nationwide locations, with the majority of the remainder being franchised.
2. Flourishing brands: Owner of the restaurant brand Outback Steakhouse, Blooming brands BLMN has been another popular takeover target over the years. The company’s portfolio of casual dining brands could be attractive to a private equity investor. Bloomin’ Brands has more than 1,450 restaurants in 47 states and 17 countries.
Bloomin’ Brands reported revenue of $1.1 billion, up 15.5% year-over-year in the latest quarter, with same-store sales up 36% in the States -United. The company raised its outlook for the full year in the wake of the report.
Bloomin’ Brands has 1,163 company-owned locations and 287 franchise locations, which could be an opportunity to unlock value for a new buyer down the road.
The shares are trading at $19.05, near the low of the 52-week range of $17.27 to $30.40. With a market capitalization of $1.5 billion and a declining stock price, now could be a good time for someone to play with the company.
3. Brinker International: Owner of Chili’s and Maggiano’s, Brinker International EATrecently announced its CEO Wyman Roberts will retire in June. Roberts has led the company since 2013 and spent more than 17 years with Brinker. Senior management transition can sometimes lead to different thoughts or ideals, including whether to pursue acquisitions or mergers.
Brinker has more than 1,600 restaurants in 29 countries and has also recently launched several virtual brands, including Its Just Wings.
Related Link: Wendy’s Rises as Largest Shareholder Expresses Intent to Take Over
4. BurgerFi: Best burger chain BurgerFi IBF went public via the SPAC merger in late 2020. The business could be an attractive game for a restaurant owner looking for exposure in the fast-casual part of the industry, or for a relatively small chain with a margin of expansion.
BurgerFi acquired Anthony’s Coal Fired Pizza & Wings in late 2021 to diversify its business, which could add value to a potential experience business.
The company opened six new BurgerFi locations in the first quarter and is targeting 15-20 new locations for the fiscal year.
BurgerFi has 124 locations, including 97 franchised and 27 company-owned. The company also owns 61 other restaurants outside of the BurgerFi brand.
The company is well known in some states and was the former Fast Casual premium brand for 2021 and among the nation’s fastest growing restaurants in the top burger category.
5. Potbelly Corp: Sandwich brand Potbelly Corp. PBPB went public in 2013 at $14 per share. After a strong first day of trading, the shares fell sharply and are now trading at $5.17. With a market capitalization of $147 million, the chain might look attractive for a takeover or a combination with another brand at a higher price.
In the first quarter, Potbelly reported comparable store sales growth of 24.4%, which marked the fourth consecutive quarter of positive SSS. Strong digital growth has paved the way, which could be a sign of growth to come. Total revenue increased 26% in the first quarter to $98.2 million.
The company has more than 400 company-owned stores, which could make the company a valuable play for a new owner or partner to transition to a franchise model.
Disclosure: The author is long on BFI stocks.