Prospective Jack in the Box buyers are backing off a potential purchase amid concerns about the company’s growth prospects and its asking price, according to a report in Debtwire, which sent the company’s shares falling more than 5% Thursday.
Jack in the Box trades at a valuation multiple of about 12 times earnings before interest, taxes, depreciation, and amortization. Generally, buyers are reluctant to buy a restaurant chain that trades into the teens unless that company has strong growth possibilities.
The Debtwire report suggested that buyers are concerned about Jack in the Box’s feud with its franchisees.
Operators late last year said they had passed a no-confidence vote on current management, and then called on the company to replace CEO Lenny Comma. Franchisees then sued the San Diego-based fast-food chain.
A Jack in the Box spokesman said the company does not comment on market rumors.
The feud with franchisees, coupled with pressure from an activist shareholder, led Jack in the Box to announce plans to explore strategic alternatives in December.
Yet if a company is to be sold, shareholders will want a price higher than they can get simply by selling their shares to be convinced to agree to a sale. As such, they would want a valuation considerably higher than Jack’s estimated $3 billion enterprise value.
Buyers looking to make a profit off such a purchase, however, might consider that price too high—especially if they don’t think the company will grow enough for them to generate a return down the line.
As a mostly franchised company, the 2,200-unit Jack in the Box depends on its franchisees to build new units for the company to grow. That could prompt growth concerns if those operators are feuding with the company.