Dive Brief:

• Tropical Smoothie Cafe could be exploring a sale as high as $2 billion, Reuters reported Thursday, citing people familiar with the matter.
• Levine Leichtman Capital Partners originally bought the chain in 2020 for an undisclosed amount and planned to expand the chain, which had a pipeline of 500 units at the time.
• This news marks the second reported restaurant acquisition deal in process reported by Reuters this month. Last week the publication said Chuck E. Cheese was putting itself up for sale for a reported $1 billion. 

Dive Insight:

If these two deals come to fruition, they show a dramatic shift in M&A activity, which has been nearly stagnant since the fourth quarter of 2022. It would show that buyers are eyeing businesses with high growth potential and strong balance sheets. 

Very few deals were completed this year, including Darden’s purchase of Ruth’s Hospitality. Earlier this week, FSC Franchising, which owns The Brass Tap and Beef ‘O’ Brady’s, said it completed a buyout of Newk’s Eatery. Roark Capital is in the process of buying Subway for $9.5 billion.

Aside from franchising, Tropical Smoothie has looked into other ways to grow, including a rumored IPO in 2022. Tropical Smoothie Cafe has grown from about 870 units in 2020 to 1,335 as of the end of Q3 2023, according to a press release. It also signed 166 franchise agreements year to date. 

The company boasted positive same-store sales growth, but didn’t specify how much its sales grew during Q3. Its strategies include ongoing menu innovation, such as the release of its Island Punch Smoothie this year that led to a consumer response the brand described as “resounding” and “overwhelming.”