Dive Brief:

• Houlihan's Restaurants, Inc., parent company of Houlihan’s and J. Gilbert’s, has entered into an asset purchase agreement with Landry’s, which is serving as a stalking horse bidder to acquire substantially all of the company’s assets, unless a higher or better offer is provided, according to a press release. Landry’s bid is worth $40 million, according to Restaurant Business. 
• Houlihan's also entered into Chapter 11 bankruptcy and has received new financing commitments that would provide the business with enough liquidity to fund its operations. 
• Franchise restaurants are not included in the sale or Chapter 11 and will continue to operate independently. The sale is expected to close before the end of the year.

Dive Insight:

Merger and acquisition activity in the full-service segment is particularly active this year, especially as management faces ongoing declines in in-store traffic. While just about every casual brand has been exploring ways to boost off-premise sales, from catering to pickup and delivery, it still hasn't been enough to bolster years of declining sales.

These struggles are much more apparent among publicly traded companies, which have been under intense scrutiny by investors to turnaround their businesses or sell. Del Frisco's, J. Alexander's, Red Robin and Bloomin' Brands are among the public restaurant brands that have faced investor pressure this year, with both Bloomin’ and J. Alexander's mulling sales. Red Robin fended off an unsolicited bid, but had to refresh its board and has a new CEO. Del Frisco’s ended up selling its company to a private equity firm, L Catterton, which then split up the company, selling Del Frisco's Double Eagle Steakhouse and Del Frisco's Grille to Landry's. Other casual brands sold this year include Pei Wei, P.F. Chang's and Jack's Family Restaurants.

For Houlihan's a sale was a last resort. Houlihan’s has been facing down $47 million in debt from a December 2015 loan, which is due in December 2020, and hasn't made any payments since December 2018, according to Restaurant Business. During the summer, it said it would look into a sale to meet its debt obligations. Houlihan's sales declined 3.6% in 2018 to $181 million and its units slipped 8.2% to 67 units.

Declaring bankruptcy during the sales process also helps remove debt and makes a company more attractive to sellers, which is what Perkins & Marie Callender's ended up doing. It ended up splitting its brands, selling Perkins to Huddle House and breaking up Marie Callender's in a separate sale. 

Landry's also has been a particularly active acquirer of full-service concepts of late, deploying a strategy of stalking horse bids that tend to be minimum offers in an asset auction, according to Restaurant Business. The company made a $37 million stalking horse bid for Restaurants Unlimited in August after that company declared bankruptcy. 

While some concepts have been sold, other full-service brands have become active acquirers as a way to diversify their operations to try and boost shareholder value. Cracker Barrel bought Maple Street Biscuit Company in October just months after it invested $140 million in Punch Bowl Social. The Cheesecake Factory bought Fox Restaurant Concepts for $353 million during the summer.

Also in a reverse of the ongoing trends of taking companies private, TGI Fridays plans to go public following the completion of its transaction with Allegro Merger Corp. Given the strong M&A activity this year and with so many casual brands mulling sales, next year will likely be another active year.