Dive Brief:

• Dine Brands will acquire fast casual chain Fuzzy’s Taco Shop for $80 million in cash from Experiential Brands, a wholly owned subsidiary of NRD Holding Company, the companies announced Monday. 
• Fuzzy’s Taco Shop, based in Fort Worth, Texas, was formed in 2003 and has 138 restaurants across 18 states and a pipeline of over 125 units. It’s expected to have $230 million in systemwide sales this year.
• The acquisition would mark the first transaction Dine Brands has completed since it was established in 2007 to bring together then newly acquired Applebee’s and IHOP.

Dive Insight:

This size and deal type could provide a M&A model for the company going forward, but it doesn’t currently have any plans for future transactions, Dine Brands said in an investor presentation filed with the SEC. In the meantime, Dine will integrate Fuzzy’s into its platform. Fuzzy’s will provide diversification and additional exposure to Mexican, fast casual and value dining categories, Dine said. The company will continue to invest in technology, marketing, menu and restaurant innovation. 

Despite being outside of the casual dining segment, Fuzzy’s complements Dine’s current brands. It’s predominantly franchised owned, with 98% of units run by franchisees. About 40% of its sales mix is off-premise, which aligns with an increased push for off-premise across IHOP and Applebee’s in the last few years. Both brands have been exploring virtual brands while Applebee’s is looking further into drive-thru pickup lanes. 

Fuzzy’s dayparts are predominantly dinner at 52% and lunch at 42%, areas that IHOP has been trying to strengthen in the last few years with additional menu items, like bowls and burritos, that also play well in the off-premise space. Dine said Fuzzy’s also has a unique identity and is highly competitive, with strong consumer awareness and net promoter scores. Its menu consists of all-day breakfast items, as well as quesadillas, tacos, burritos, plates and bowls. 

Dine Brands isn’t entirely unfamiliar with fast casual as it has been growing its IHOP-inspired fast casual brand Flip’d since opening its first location last year. Flip’d has a total of three units open, with one in Cincinnati, Ohio, “opening soon,” according to its website. 

The move to sell Fuzzy’s is a shift in strategy for NRD. When NRD formed Experiential Brands last year, it anchored the growing platform’s acquisition strategy around Fuzzy’s. However, the additional cash from this transaction could help NRD fund future transactions, especially as capital has become more expensive following interest rate hikes.

Dine Brands said in an email to Restaurant Dive that the transaction is expected to close soon, but didn't provide a specific timeline.