5 potential takeover targets

Buffalo Wild Wings sale could unleash other go-private deals, so here are five that could happen.

When Arby’s Restaurant Group Inc. bought Buffalo Wild Wings Inc. last month, it didn’t just acquire one of the best names in casual dining. It signaled to other investor groups that there are potential bargains to be had among publicly traded restaurant chains.

Indeed, it might have changed the mergers and acquisitions outlook since the last time we ran a list like this.

While restaurant stocks overall have flourished in 2017, many chains have seen their valuations fall, particularly smaller chains and casual-dining concepts.

That has brought many concepts to valuation levels that could make them valuation targets. Until now, however, private-equity groups and strategic buyers have been reluctant to take on such targets—fearing that they would be victims of a shifting industry landscape.

Roark Capital and Arby’s, however, saw an opportunity in Buffalo Wild Wings’ depressed valuation. The stock, which traded at more than $170 a year ago, fell to below $100 at one point and was about $120 a share before Roark agreed to pay $157—a valuation multiple of just over 10 times earnings before interest, taxes, depreciation and amortization, or EBITDA.

Here are five other chains that could be had, based on valuations and other data as well as my own speculation.

Bloomin’ Brands Inc.

We’ll start with the obvious, and one that my colleague Peter Romeo pointed out himself last month. Jana Partners LLC, the same activist investor that convinced Whole Foods to sell itself to Amazon, is expected to push for a sale of some sort. The company also has four brands that could be split up, including Bonefish Grill and Fleming’s Prime Steakhouse. While the stock is up 18% since Jana’s entrance, it has an enterprise value multiple of just under 7 times EBITDA, according to the Wall Street Journal. And it operates Outback Steakhouse and Carrabba’s Italian Grill, both of which are strong names among casual-dining concepts. Outback in particular has outperformed other chains in recent quarters.

Cheesecake Factory Inc.

The Calabasas Hills, Calif.-based casual-dining chain has a great name, and operates about 200 massive, elaborate restaurants with broad menus and that cheesecake. The restaurants have some of the best unit volumes in the industry and cater to consumers’ desire for a dining experience. But the stock is down nearly 23% year to date, bringing its valuation below 8x, which could make it a takeover target for an opportunistic investor.

Potbelly Corp.

Much like Bloomin’ Brands, this is an obvious one. The Chicago-based sandwich chain is exploring strategic alternatives. It just hired a new CEO. And it has activist investors who want the company to take a sales process seriously. Indeed, if the company doesn’t sell itself, it’s almost assuredly going to face a proxy fight in the coming months. Since more than doubling in valuation on the first day of its much-hyped 2013 IPO, Potbelly has languished in the low teens.

Habit Restaurants Inc.

The fast-casual burger chain has had a tough year. Its stock is down nearly 45%, taking it under $10 a share and giving it an enterprise valuation multiple of below 6. That valuation makes it easy to envision some operator taking the company private.

BJ’s Restaurants Inc.

Similar to both Bloomin’ Brands and Cheesecake Factory, BJ’s is trading at a potential take-private multiple of just below 7. The chain has been a speculated takeover target before, given its valuation and growth potential. Whether a private-equity group takes it private or not probably depends on whether they view BJ’s as a bar and grill chain, or a more entertaining version of a casual-dining concept. If it’s the latter, it would not be a surprise if someone takes a shot.

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