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Who could buy Papa John’s?

An analyst mentioned a few potential candidates, and RB’s The Bottom Line examines them, and what a buyer would have to do.
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The Bottom Line

Papa John’s is looking for buyers and, according to reports, is finding plenty of potential bidders, including an activist investor who also happens to be Wendy’s largest shareholder.

That has helped lift the stock despite some epic concerns surrounding the chain—notably, same-store sales falling in the 10% range, a founder in John Schnatter who owns 30% of the company and is agitating to return to a role, as well as struggling operators.

Still, there’s a lot to like about the company—it still has a quality positioning: Pizza is a popular product and we hear delivery is a big deal. All of that could make Papa John’s an attractive takeout target.

Also, there are a lot of buyers out there. Chris O’Cull, analyst with Stifel, said in a note this week that he “cannot remember a time where the restaurant industry has seen so much demand by PE firms and strategic acquirers.”

Neither can we. And O’Cull also agrees that a strategic buyer is the more likely scenario. Existing restaurant owners are far more willing to stomach the price it would take to swallow a company like Papa John’s, which would probably require a price tag of around $2 billion.

Who could buy the company? O’Cull mentioned a few potential buyers. Let’s take a look at them, ranked in order of who we think is most likely to take a stab at the Louisville, Ky.-based chain. We also add a couple of our own.

Restaurant Brands International

Speculation has long centered around the owner of Burger King, Tim Hortons and Popeyes making another purchase. The company could buy any number of restaurant companies, and a pizza chain would fit its portfolio quite nicely.

On top of that, Papa John’s delivers. RBI is itchy to get more into one of the bigger trends in the restaurant business.

RBI would also provide a culture shock to the company and would take aggressive marketing steps to put Papa John’s in front of customers. I will continue to keep RBI at the top of my list of potential buyers of the chain until someone else buys it.

Inspire Brands

Arby’s owner needed only a few months after the completion of its purchase of Buffalo Wild Wings to buy Sonic Drive-In. So why would it avoid making another deal? It certainly doesn't plan to stop with Sonic.

Much like RBI, pizza would fit nicely with the company’s existing brands.

Trian Fund/Wendy’s

This is the interesting one. Earlier this week, the Wall Street Journal reported that Trian Fund, Wendy’s largest shareholder, has been considering a bid for Papa John’s.

Why would Trian, an activist investor, buy a restaurant chain? Well, it’s certainly not above doing such things. It owned Arby’s, after all. It then engineered a merger with Wendy’s, then spun off Arby’s.

But my guess is this: Trian engineers a merger between Wendy’s and Papa John’s. These two companies were apparently in talks before the controversy erupted. And that would give Wendy’s a second brand. At a time when so many other concepts are consolidating, that could be beneficial.

Dine Brands Global

There are kids several years old who do not know of a world in which the owner of Applebee’s and IHOP is looking for a third brand. Given the company’s openness about the subject, I’m guessing those kids will finally see that happen in the near future.

Would that third concept be Papa John’s? Perhaps. But that doesn’t quite seem like the restaurant Dine Brands would choose to take on at this particular time.

The field

A private-equity group would likely swallow hard after looking at the price tag it would take to fetch Papa John’s, though it’s certainly not out of the question. As we said, there’s a lot to like here.

There’s also the possibility that an international buyer might be interested in taking on a U.S. business, especially one with global growth prospects. Someone like, say, Smashburger owner Jollibee could take a chance on the chain, focus on its international growth and work to improve its domestic operations.

John Schnatter

O’Cull doesn’t list Schnatter. But nobody could buy the chain for less money than its founder, because he still owns 30%. And he clearly wants a role with the company.

Schnatter reached out to investment firms, according to CNBC, but has since vehemently denied the report. Still, it would make sense that he tries to leverage his ownership to take the brand private.

Finding a private-equity group, however, is easier said than done.

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