Nov 4, 2023 3 min read

The State Of Restaurant M&A in 2023: Historical Environment Could Define The Next Decade

2023 has seen a sharp uptick in restaurant M&A. Why do investors believe this is the best time to invest in the last decade?
The State Of Restaurant M&A in 2023: Historical Environment Could Define The Next Decade

In March of 2023, QSR Magazine published an article titled “Will Restaurant M&A Pick Up in 2023?” Given the challenges around high costs, permitting issues, and overall restaurant profitability when opening, the article predicted significantly less new concept development. For reference, the number of restaurants per capita is at its lowest point in 25 years, and it is proving increasingly challenging to get a return on investment for any new concept. However, the article also predicted the possibility of groups taking advantage of the current market environment to capitalize on brand positioning. (QSR Magazine) Nine months later, their prediction has proved to be overtly correct. How did we get to this point, and what has changed as of this year?

Valuations that were once incredibly high in 2021 fell in 2022 due to a combination of a tanking stock market, increased interest rates, and high inflation. According to NRN, there were only 30 private equity deals involving restaurants chains in 2022, down from 41 deals in 2021. Unsurprisingly, the lack of deals was based on a wide gap in valuation difference between buyers and sellers. When sellers were still looking to price at 2021 levels, buyers were understandably unwilling to meet them. According to Jim Balis, head of strategic operations group for Capital Spring, “Sellers (were) selling off 2021, while we’re looking at the last two weeks. Generally, the bid and ask have been so far off it’s been tough to do deals.” (Restaurant Business)

Eventually, one side needed to budge, and 2023 has brought about a sharp increase in M&A within the restaurant industry. Earlier this week, Authentic Restaurant Brands completed its previously announced acquisition of Fiesta Restaurant Group, the parent company of Pollo Tropical, for $225 million. For those unfamiliar, Pollo Tropical is a quick service concept known for its Latin-Caribbean cuisine, with over 140 locations throughout the United States, as well as franchise locations in the Caribbean, Central America, and South America. (NRN)

Last week, Chicken Salad Chick, the fast casual chicken salad brand acquired, Piece of Cake, the Georgia based cake chain, in an effort to enhance their dessert offerings and compete within the always growing fast casual sector. While Chicken Salad Chick did not need to change their offerings to include dessert, they capitalized on an opportunity to differentiate themselves in the space and hopefully propel them to their next stage of growth. (PR Newswire)

Brands who have the ability to allocate financial resources understand that this is an incredible time to be an investor. According to Pitchbook, the ratio of supply of companies who are seeking investment is 1.6 times greater than those looking to invest, specifically within the venture capital sector. In other words, in the last 12 years, there has been no more favorable time to be an investor, meaning lower overall valuations and exceptional deal terms. While there may be a significant decline in total deal flow, those that are willing to deploy capital are taking advantage of historically great acquisition opportunities.

This trend has continued throughout the year. In October of 2023, private equity firm Apollo Global Management acquired The Restaurant Group, the London based company that owns Wagamama, for $623 million. In August, Fogo de Chao, the Brazilian steakhouse, was acquired by Bain Capital for an undisclosed fee. This was in conjunction with Fogo de Chao’s plans for an IPO, which is expected as early as 2024. In May of 2023, Olive Garden parent company Darden Restaurants acquired Ruth Chris for about $715 million.

It is exactly these types of deals that can differentiate winners and losers. While this environment will not last forever, and terms will eventually come closer to equilibrium, deals in 2023 could prove to shape the next decade of the restaurant industry.

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