Dive Brief:
- J. Alexander's board of directors expanded its review of strategic alternatives and will consult with financial and legal advisors and the company's management team to explore, review and evaluate a full range of options to maximize shareholder value, according to a press release.
- The options under consideration include a merger or sale of the company, strategic large investment in the company along with a significant share repurchase or an acquisition of a complementary concept that would increase the company's revenue and leverage.
- "Recent transactions for companies in the upscale casual dining segment make this potential path more attractive now as we contemplate how to best position the company for the future," J. Alexander's executive chairman Lonnie J. Stout II said in a statement.
Dive Insight:
Given the tremendous pressure casual dining chains are under lately to improve sales and guest counts, it's no surprise that boards are starting to cave to investor demands. Activist investor Ancora Advisors submitted a takeover bid for J. Alexander's in April, but the board of directors rejected the proposal, saying the price was too low and wouldn't increase shareholder value.
What likely helped change the board's stance is the recent stream of acquisitions in the casual dining space. Del Frisco's entered into an acquisition by private equity firm L Catterton for $650 million in June, following months of investor scrutiny. The Cheesecake Factory bought Fox Restaurant Concepts for $350 million earlier this month. Onex Group sold Jack's Family Restaurants in July for triple its original investment while Hooters of America was sold to private equity firms Nord Bay Capital and TriArtisan Capital after being on the market for nearly a year.
While the company did not provide a timeline or guarantee a result to its strategic review, companies that entered into these reviews more often than not choose to sell, especially if following Del Frisco's example. It entered into a strategic review in December only to follow it up with an acquisition over six months later. Given J. Alexander's improving sales position, with net sales increasing 3.8% during the first half of the year, it could be an attractive buy so long as the buyer has a plan to increase weekly guest counts, which declined 1.2% for the J. Alexander's/Grill restaurants.
