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Who could Inspire Brands buy?

The Bottom Line: Arby's and Buffalo Wild Wings want to buy more brands, and they have plenty of choices.

The Bottom Line

Earlier this month, Arby’s announced that its purchase of Buffalo Wild Wings for $2.9 billion was done and that the companies had created Inspire Brands.

In the aftermath, the company made no mistake about its intention: to be a vehicle for acquiring and operating restaurant chains.

Inspire Brands CEO Paul Brown said in interviews that his company would target brands with between $1 billion and $4.5 billion in system sales. The company is also agnostic about service style and whether the company is franchise- or company-operated.

That’s a lot of potential targets. “It’s a pretty wide net,” Brown said to Restaurant Business.

Based on Technomic's Top 500 data, that’s about 36 brands, but is probably more than 40 if we fudge the numbers.

But factor out certain companies, such as brands that Inspire owner Roark Capital owns, companies that were recently sold, such as Ruby Tuesday, and others that are clearly not candidates, such as Olive Garden and KFC, and the number is down to 24.

Remove Hooters, which probably competes too closely with Buffalo Wild Wings, and there are 23 potential targets.

That list includes some interesting names, such as Applebee’s owner DineEquity, Dairy Queen, Papa John’s, Denny’s and Red Lobster, as well as Jack in the Box, Five Guys and Zaxby’s.

Some of these brands are more likely than others. Let’s talk about five publicly traded brands that I think could make ripe takeout targets, using Inspire’s criteria: a concept with a unique position in the market that could either franchise or operate its own restaurants or both, agnostic of service type.

Keep in mind this is all speculation, and Brown himself said that Inspire will focus on integrating its two brands into one company before it considers another purchase.

Still, in an era of changing restaurants and acquisitions that seemingly come out of nowhere, it’s interesting to speculate about potential targets.

Bojangles’

C.L. King in a note earlier this week speculated that Bojangles’ would “check all the boxes” of a chain that Inspire Brands could target as a potential acquisition.

Bojangles’ has a sizable breakfast business, but the chain in recent quarters has underperformed many of its competitors. Systemwide same-store sales declined 2.2% in the company’s third quarter ended Sept. 24, for instance.

Bojangles’ stock has declined 42% over the past year, giving it a valuation that would make it a potentially attractive takeover target—regardless of whether that buyer is Inspire Brands.

Sonic

Sonic is at the top range of the size of companies that Inspire Brands is targeting, with 2017 system sales of $4.4 billion.  

And Sonic would fall neatly into Inspire’s wheelhouse. There are no brands like it, similar to the uniqueness of both Arby’s and Buffalo Wild Wings, though its drive-ins tend to limit its ability to expand into colder climates.

Sonic’s stock has been up and down the past year, though has lost just more than 7% of its value. Its enterprise value of $1.6 billion easily puts it within reach of Inspire Brands.

The Cheesecake Factory

Much like the other chains on this list, The Cheesecake Factory has seen its stock price decline over the past year as investors have grown concerned about its sales. The stock has fallen about 30% over the past 52 weeks.

But Cheesecake Factory is another chain that, like the others, has a more unique offering—it boasts average unit volumes of a ridiculous $10.7 million. Those volumes and its growth potential could make it a potential takeover target.

Red Robin Gourmet Burgers

The Denver-based, burger-centric casual-dining chain hasn’t done too poorly of late on the public markets—its stock is up nearly 14% over the past year. But it has an enterprise value of 7 times earnings before interest, taxes, depreciation and amortization, or EBITDA, which on its own prices the company well within buyers’ comfortable acquisition range.

And the 570-unit chain has a unique place in the market—concentrating on burgers with a core customer loaded with families.

BJ’s Restaurants

Huntington Beach, Calif.-based BJ’s might be too close a competitor with Buffalo Wild Wings, or it could be a nice companion chain. Regardless, it doesn’t have a lot of debt and has long been rumored to be a potential acquisition target in some form.

The chain’s stock has been mostly flat over the past year. It has an enterprise value of 8 times EBITDA and could easily be had for far less than what Arby’s paid to get Buffalo Wild Wings. But it also has a ton of growth left and could be a tempting target for a company that doesn’t mind buying casual-dining chains.

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