If I told you, say, two years ago that in 2024 Jersey Mike’s, Tropical Smoothie, Red Lobster, MOD Pizza and BurgerFi would all be sold over the course of the year, you’d naturally expect a seller’s market, probably one with lower interest rates and all kinds of eager buyers.
All those chains did get sold this year. But the market was pretty much the exact opposite. It was a buyer’s market. And even then there just weren’t all that many buyers, except bargain hunters and the rather opportunistic Blackstone.
The private-equity firm was the buyer of the year’s two headlining deals: A $2 billion acquisition of Tropical Smoothie Café and, more recently, the acquisition of a majority stake in the sandwich brand Jersey Mike’s at a valuation of $8 billion. There was also the $9.6 billion deal for Subway by Roark, but that deal was announced in 2023, so we do not include it in our analysis of 2024 deals.
The other deals all came at the lower end of the market, with buyers paying a fraction of the chains’ former valuation.
To wit:
Red Lobster: Once one of the country’s largest casual-dining chains, the seafood concept has struggled over the past few years with a combination of bad management, high lease costs and the pandemic. An infamous “Endless Shrimp” deal hammered profitability.
The company landed in bankruptcy. Fortress Investment Group, a private-equity firm that was one of Red Lobster's lenders, converted that debt to equity in the bankruptcy process—a common theme in 2024 acquisitions of restaurant chains.
MOD Pizza: In 2021—remember that year?—the fast-casual pizza chain was planning an IPO. For a time it was one of the country’s fastest-growing restaurant chains, having raised $345 million from investors.
By 2023 it had overhauled company management. In 2024 it was exploring bankruptcy but was acquired by Elite Restaurant Group. MOD was not exactly sold for top dollar. Several people we talked with who looked at the deal described the company as a “mess.”
BurgerFi: While BurgerFi wasn’t quite in the MOD conversation, it was neverthess considered a hot concept. It went public through a reverse merger in 2020. Then it merged with Anthony’s Coal-Fired Pizza. It, too, landed in bankruptcy and was sold to a group led by former Famous Dave’s CEO Jeff Crivello, who bought the debt of the company at a discount.
That wasn’t Crivello’s only such deal. His TREW Capital Management also acquired Rubio’s that way, ultimately taking control after a bankruptcy sale.
Indeed, several chains were sold out of bankruptcy to “lenders,” or investors that acquired the debt at a discount from banks that just wanted that debt off their books. That includes Buca di Beppo, which was sold to Main Street Capital and Tender Greens and Tocaya, sold to Breakwater Management. Giant franchisee Sun Holdings bought a pair of brands at low prices, Uncle Julio’s and Freebirds World Burrito.
On balance, buyers were not interested in acquiring actual restaurants, unless they were the rare strategic buyer out for growth, as was the case when Darden Restaurants acquired the Mexican chain Chuy’s, or they had other reasons for doing so. That was clearly the case when Burger King owner Restaurant Brands International bought the giant franchisee Carrols.
Interest rates were high, which increased the cost of debt and made it difficult for buyers to pay as much as they once might have for restaurant chains. In addition, profitability for those restaurants had come down, which also decreased what buyers might have been willing to pay. And many buyers simply didn’t want to buy restaurants right now.
So why were Jersey Mike’s and Tropical Smoothie able to fetch strong valuations? They’re franchised. “You’re using other people’s money to build units,” Damon Chandik, who leads restaurant investment banker at Piper Sandler, said at the Restaurant Finance and Development Conference in November.
It doesn’t matter the category, there’s less risk associated with operating a franchise, and so buyers are still willing to buy such companies. Both Tropical Smoothie and Jersey Mike’s are high-growth franchises that were able to attract such a buyer in Blackstone, a giant investment firm that is now a big player in the restaurant business.
Most observers expect a better year for acquisitions in 2025, at least for those well-run restaurant companies looking for a fair valuation. Because 2024 certainly wasn’t a seller’s market, no matter what brands changed hands.
UPDATE: This story has been updated to correct that Fortress was a lender to Red Lobster and didn't acquire the debt.
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