Darden to buy Ruth’s Hospitality Group for $715M

Dive Brief:

Darden Restaurants will acquire Ruth’s Hospitality Group, the owner of the 154-unit Ruth’s Chris Steak House brand, for $715 million, the companies announced Wednesday.
Darden’s offer is priced at $21.50 per share, which it said is a 32% premium on the share price for Ruth’s Hospitality over the last 30 days. Darden said it has sufficient cash to complete the transaction without new financing.
This deal is likely the largest restaurant acquisition in the U.S. so far this year, as other transactions have involved small chains or companies that didn’t disclose financial terms.

Dive Insight:

High borrowing costs and inflationary pressure have made it more challenging for brands to finance new deals this year. Darden’s acquisition of Ruth Hospitality and a looming sale of Subway, which could be valued at over $10 billion, would buck that overall trend.

Despite an estimated $55 to $60 million in estimated acquisition and integration-related costs, Darden believes it will “maintain a strong balance sheet and have sufficient capital to achieve its stated capital allocation priorities of maintaining existing restaurants, growing new restaurants and returning capital to shareholders through dividends and strategic share repurchases,” the company said.

Ruth’s Chris Steak House will add another brand to Darden’s umbrella, which already includes steakhouse brands LongHorn Steakhouse and The Capital Grille. But Darden CEO and President Rick Cardenas said Ruth’s Chris is a “strong and distinctive brand in the fine dining segment,” which could complement its existing portfolio. The chain boasts about $860 million in systemwide sales, according to the press release, and $500 million in revenue. High unit volume, coming in at about $6.2 million for fiscal 2022, at company-owned restaurants is driving this performance, per the press release.

Darden expects the deal will contribute positively to EPS by 10 or 12 cents in fiscal year 2024. According to the press release, the deal has been approved unanimously by the boards of both companies. Cheryl Henry will continue to lead Ruth’s Chris as president and will report directly to Cardenas.

The market for acquisitions is likely to remain cool, given steep borrowing costs and the failure of three major regional banks, which may make it harder for businesses to raise capital. Still, a handful of restaurant deals have been struck recently. SPB completed is merger with Krystal last month, after the brand’s owner, Fortress Investment Group, created SPB to manage its foodservice brands in 2020. Private equity firm Area 15 acquired the 130-unit Port of Subs chain in early April for an undisclosed sum. Main Squeeze Juice Bar bought the I Love Juice Bar brand, which has about 20 units, in March. Garnett Station Partners bought the 56-unit Firebirds Wood Fired Grill in the same month.