More than 70 restaurant chains have traded hands over the past two years and, so far, that pace of merger and acquisition activity hasn’t slowed down in 2019—already Firebirds Wood Fired Grill, P.F. Chang’s, Taco Bueno, and Papa Gino’s have changed hands.
Several others are for sale, too, including at least four publicly traded restaurant chains. We cannot recall a period in which so many publicly traded chains were actively looking for buyers at the same time.
But just because a company is looking to sell itself doesn’t mean it actually will. A handful of companies in recent years have tested the sale waters before ultimately concluding that buyers wouldn’t pay enough to warrant a deal. Indeed, all four of the companies on the market present challenges that make a sale more uncertain.
Here’s a look at the companies on the market, and who could become a target.
Jack in the Box
Maybe no restaurant company has deployed as many financial strategies to bolster its stock price in recent years than this San Diego-based company.
It has cut corporate overhead. It went from a mostly company-owned system to an asset-light franchisor over a decade. It sold off a secondary chain in Qdoba.
The most disconcerting thing about Jack in the Box is this: It hasn’t grown for years. It has 13 fewer locations now than it did in 2014. The franchisees the brand is counting on for growth aren’t providing it, and they’re really angry right now.
Best case scenario: It gets sold to a multibrand operator that can repair franchisee relations and improve operator profits enough that they want to add locations.
Of the four companies here, this is the only one that hasn’t officially stated it's looking for buyers, but the pizza chain has been taking offers for months now.
Papa John’s was widely viewed as an attractive takeover target last summer after its stock price plunged. It has international growth prospects, sizable digital ordering capabilities and delivery expertise. Pizza is still popular.
But there’s also the wild card in the form of disgraced founder John Schnatter, who owns 30% of the company and has been agitating for a return to a more active role at the company.
The company’s stock price, meanwhile, has yo-yoed along with confidence in the prospects of a purchase, which is currently lukewarm. There’s a lot to be had here for the right buyer, but the price might not be attractive enough.
Del Frisco’s Restaurant Group
Last year, Del Frisco’s bought Barteca Restaurant Group in a massive deal and then sold off the struggling Sullivan’s Steakhouse chain to Romano's Macaroni Grill. Just like that, the company was loaded with assets, featuring a flagship upscale chain in Del Frisco’s Grille to go with a pair of growth concepts in Barcelona Wine Bar and Bartaco.
That clearly didn’t satisfy investors. Del Frisco’s stock fell more than 50% last year, and the company has an activist investor that wants it to sell.
What should it do? It could sell the whole thing, but Del Frisco’s has a lot of debt, which could discourage buyers. It could sell off parts of the brand to pay down debt—one investor mentioned selling off Bartaco, for instance. But why sell a growth concept you just bought?
Papa Murphy’s Pizza
The Vancouver, Wash.-based chain of take-and-bake pizza places didn’t get off on the right foot when it went public in 2014—some franchisees of the chain sued the company.
Murphy’s has struggled with weak sales and closing locations. Unit count has declined by 82 locations to 1,460 as of last November. The chain has been refranchising company locations.
Sales have started to improve—its 2.1% decline in the third quarter of last year was its best performance in three years, which says something about those three years. And sales turned positive in the fourth quarter, a major milestone.
Given the state of the current market, nearly any publicly traded company is a potential target, short of large-scale companies like McDonald’s, Starbucks and Domino’s Pizza, as well as existing multibrand companies like Yum Brands and Restaurant Brands International.
One company long speculated as a potential takeout target is Red Robin, where sales struggled last year and, like Del Frisco’s, its stock price fell, too.