J. Alexander’s weird second go-round as a public company came to a quiet end last week with the casual dining chain operator’s sale to SPB Hospitality, the owner of Logan’s Roadhouse and several other concepts.
Shareholders got the better end of that deal. SPB Hospitality agreed to pay $14 per share for the company, or about 17% higher than J. Alexander’s all-time-high share price—giving the company a total valuation of $220 million.
For comparison’s sake, an activist investor pushing for a sale offered the company $11.75 per share in April 2019, itself a 24% premium from its previous trading price, or $172 million. That activist push led the company to start exploring a sale, which was delayed because of the pandemic and which gained steam more recently as the industry’s valuations took off.
J. Alexander’s has been an under-the-radar casual dining operator but for one issue: Its strange relationship with Fidelity National Financial and related companies and issues related to its valuation.
The Nashville-based company was taken private in 2012 by Fidelity National Financial, whose chairman Bill Foley was the CEO of CKE Restaurants in the 1990s. Fidelity initially agreed to pay $72 million. Shareholders pushed the issue, arguing that it was more valuable than that. Fidelity ended up increasing its offer multiple times and paid $87 million. A shareholder uprising, in other words, won them a price 21% more than management initially accepted.
Much of the company’s management didn’t change under Fidelity, which acquired J. Alexander’s as part of a buying binge that also brought it several other chains, including Stoney River Steakhouse and Ninety Nine Restaurants. Fidelity folded Stoney River into J. Alexander’s and spun the company off in 2015 as a public company again.
The issue of J. Alexander’s valuation came up again two years later, when the company agreed to buy Ninety-Nine Restaurants from Fidelity.
That deal would have more than tripled J. Alexander’s unit count and would have more than doubled its revenues to $520 million. But there was one catch: It was a stock deal, meaning Fidelity would have retaken control of J. Alexander’s—a proposed deal that was opposed vehemently by shareholders and ultimately rejected.
In the end, J. Alexander’s time as a publicly traded company was little different than its previous time as a publicly traded company. It received relatively little attention for its actions and performed better than many people realized. The chain had 12 straight quarters of same-store sales growth before the second half of 2019, when it turned only slightly negative. Stoney River had 16 straight quarters of same-store sales growth.
During that entire period the company’s stock traded at a narrow window of between $8 and $12 per share. That was a problem J. Alexander’s had before it was taken private in 2012—the company didn’t quite get the love it might have earned given its performance because it is small, located primarily in the middle of the country and had those questions about its relationship with Fidelity.
It’s difficult for smaller and regional restaurant companies to get attention on the public markets. Sometimes, it apparently takes an outright sale for shareholders to get the return they really want, something J. Alexander’s shareholders have learned twice in nine years.