Financing

Chuy's responds to shareholder angst over Darden deal

Facing an onslaught of shareholder questions, the Tex-Mex chain provided additional detail on how it arrived at a sale price of $37.50 per share.
Chuy's
Chuy's and the owner of Olive Garden agreed to a deal in July. | Photo: Shutterstock

Chuy’s Tex-Mex is working to quiet shareholder complaints about its proposed sale to Olive Garden parent Darden Restaurants.

In an SEC filing Monday, the 101-unit casual-dining chain shared additional data on how it arrived at the sale price of $37.50 per share.

The chain is contending with 13 demand letters and a pair of lawsuits from shareholders questioning that price and asking for more information about Chuy’s valuation.

Chuy’s says in the filing that while it believes the complaints are without merit, it’s voluntarily providing more data in hopes of avoiding interruptions to the acquisition. It comes ahead of a shareholder meeting scheduled for Oct. 10.  

The filing, which updates an earlier proxy statement on the deal, gives more details on how Chuy’s arrived at the price of $37.50 per share and how that value stacks up against similar restaurant acquisitions. 

There are additional details, for instance, on how financial services firm Piper Sandler calculated a value for Chuy’s. The firm concluded that the chain has an implied equity value per share range of $26.55 to $38.20.

The update consists of the unlevered free cash flow estimates Piper Sandler used in its analysis. They are: negative $2.1 million for the second half of 2024, $6.6 million in 2025, $9.1 million in 2026, $9.8 million in 2027 and $24.3 million in 2028.

The filing also includes a list of 20 full-service restaurant acquisitions over the past decade and their EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. The initial filing included only a multiple range: 5x to 18.8x.

The implied multiple for the Chuy’s-Darden deal is 10.9x of Chuy’s estimated EBITDA for this year, according to the filing. The update indicates that multiple is near the top of the historical range.

Hostmore plc’s failed acquisition of TGI Fridays this year had a 5.4x multiple, for instance. The ONE Group paid 5.8x to acquire Benihana and Ra Sushi this year. Darden’s acquisition of Ruth’s Chris Steak House went for 9.4x last year.

In 2022, MTY Group nabbed BBQ Holdings at a 10.5x multiple, and Dave & Buster’s paid 9.3x for Main Event.

To find a significantly larger multiple, one would have to go back to 2018, when Del Frisco’s Restaurant Group bought Barteca Restaurant Group for a multiple of 18x. L Catterton then acquired Del Frisco’s the next year for 18.8x. 

But, as the update clarifies, those deals are outliers on the list, which otherwise does not include any multiples higher than 10.8x. (That was Arby's Restaurant Group's acquisition of Buffalo Wild Wings in 2018.)

Darden announced in July that it planned to acquire Chuy’s for $605 million in cash. It would be Darden’s second acquisition in as many years after buying Ruth’s last year. Chuy’s would be the 10th brand in its portfolio, which also includes LongHorn Steakhouse, Yard House and Cheddar’s Scratch Kitchen. The Austin-based chain would give Darden access to a new menu segment—Mexican—and a younger audience. 

Like much of the casual-dining segment, Chuy’s has struggled with declining sales and guest counts this year. Same-store sales fell 5.2% year over year in the first quarter.

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