The restaurant industry is in the early innings of a long-term period of consolidation, much like hotels and grocery stores in past years.
We certainly saw plenty of that in 2019. Cracker Barrel invested in Punch Bowl Social and then bought Maple Street Biscuit Co. Cheesecake Factory bought a restaurant factory in Fox Restaurant Concepts. And Inspire Brands bought another chain in Jimmy John’s.
But none of those deals were very big. In fact, there hasn’t been a real earth-shattering deal in the restaurant space since Panera Bread went private two years ago. And certainly no megadeal since the 2014 merger of Burger King and Tim Hortons.
That doesn’t mean there aren’t giant mergers out there to be had. So we put together a list of five deals we think would be particularly interesting next year. The focus is on the type of large-scale deals that have been lacking lately, though we tried to keep our ideas at least somewhat realistic.
Yum Brands buys Wendy’s
Every so often, there are rumors that Yum Brands will buy Wendy’s, and those rumors never turn out to be true.
But they are rumors for a reason: A Yum-Wendy’s combo would make a lot of sense.
Yum has spent the past few years setting itself up to be a brand operator. It spun off its China operations and reorganized its global operations overseeing Pizza Hut, KFC and Taco Bell. It has a system in place to add brands.
What’s more, it has a new CEO in David Gibbs, who has said Yum would consider an acquisition if it was the right fit.
Wendy’s is the right fit. It’s plenty big. It’s a burger specialist, which Yum doesn’t have. And it has plenty of growth potential, especially internationally, which is Yum’s specialty. Of course, Wendy’s is adding breakfast and refocusing its international efforts, all of which could price it out of any M&A discussion.
Yum Brands buys Dunkin’ Brands
If Wendy’s becomes too big for an acquisition, perhaps Yum could buy another franchised company in Dunkin’ Brands.
Dunkin’, much like Wendy’s, would add to Yum’s roster a company in a menu category it currently doesn’t operate in (coffee) along with desserts, thanks to Baskin-Robbins. Yum, much like it did with Wendy’s, would put Dunkin’s international growth onto the fast track, particularly in China where coffee is suddenly fashionable.
But much like Wendy’s, Dunkin’ might be a bit too pricy for an acquisition. Yet Dunkin’ would benefit from more financial backing that could help it compete more with Starbucks and McDonald’s, and Yum would add a strong fourth brand, as well as a smaller fifth brand, to its roster.
RBI buys Subway
In 2010, John Chidsey was CEO of Burger King when it was bought by 3G Capital.
A decade later, he is at the head of another fast-food chain: Subway. We think the same thing should happen, but this time the buyer being Burger King owner Restaurant Brands International, the company 3G helped create.
Both Burger King in 2010 and Subway in 2020 have had their struggles with weak sales and franchisees angry over discounts.
There is still a lot to like about Subway, the largest restaurant chain in the world by unit count. And though it appears like it will be a challenge to turn that brand around, it’s no more of a challenge than Burger King was a decade ago.
The result would give RBI a giant fourth brand to go with Burger King, Tim Hortons and Popeyes Louisiana Kitchen. The company’s marketing prowess would also do wonders for the sandwich giant.
Inspire Brands buys Papa John’s
Inspire Brands is reportedly taking a break from its shopping spree before jumping into another acquisition. Once it’s ready, we’d like to see it buy Papa John’s.
Papa John’s has distanced itself from its founder, John Schnatter, taken an investment from Starboard Value and hired a CEO, Rob Lynch, who just happens to come from one of Inspire’s concepts, Arby’s.
Inspire has indicated it wants as many as 10 concepts and is just about halfway there. Papa John’s would give the company another delivery-focused chain to go along with Jimmy John’s. And it would give the Atlanta-based company a pizza chain, which would fit nicely with the chicken wings, burgers and sandwiches that its brands currently serve.
CKE Restaurants buys Del Taco
Roark Capital now owns two multibrand operating companies in Inspire Brands and Focus Brands.
Roark-owned CKE, the owner of Hardee’s and Carl’s, doesn’t quite fit with Inspire like the recently acquired Jimmy John’s does. In theory, Roark could merge the company with Focus Brands, giving that operator a pair of large burger chains.
Instead, we’ll propose that CKE go ahead and buy Del Taco and establish a third Roark-owned multibrand company.
The Mexican QSR has not quite done that well on the public markets since it was taken public in a reverse merger in 2015. Its stock is down 35% over the past year.
While this is the smallest deal we’re proposing here, we also are suggesting that the resulting company go on to buy other chains afterward. There are plenty of midsized chains out there to be had, after all.