Papa Murphy's acquired by MTY Food Group for $190M

Dive Brief:

MTY Food Group, which franchises and operates QSR and casual dining restaurants in the U.S. and Canada, including Cold Stone Creamery and Pinkberry, has agreed to acquire Papa Murphy's in a transaction worth $190M, according to a company release.
The deal, which has been unanimously approved by the boards of both companies, is expected to close by the end of the second quarter.
After the transaction, MTY's network will include more than 7,300 stores globally with the addition of Papa Murphy's 1,331 franchised units and 106 corporate stores.

Dive Insight:

While merger and acquisition activity is expected to ramp up this year, there have yet to be any significant completed mergers in the QSR space this year, until now. The merger with MTY, which bought The Counter in 2018 and Kahala Brands in 2016, will provide more capital investments that will focus on topline sales growth and increased franchise profitability, according to the release. It also will give MTY exposure to the growing U.S. pizza market, which is worth about $46 billion in revenue as of September.

Papa Murphy's said in November that it was exploring various strategic alternatives, including a sale, and it’s not alone in this strategy. Jack in the Box also said in December that it would be exploring a sale. Chuck E. Cheese just entered into a merger and plans to go public.

Acquisitions, especially those that end up in the company going private, allow the struggling brand to revamp its strategy out of the scrutiny and limelight of the public purview. M&A also can provide a flush of new capital and new guidance that can get the company back on track.

Papa Murphy's, which has over $800 million in system-wide sales for 2018, has been struggling to stay competitive. Despite having success with online orders, which has generated 20% to 25% higher average checks, it has reported several quarters of slumping sales and dozens of store closures, according to Restaurant Business. Same-store sales declined 2.5% last year compared to the previous year and revenue declined to $126.4 million compared to $148.5 million, according to an earnings release.

The pizza industry has become particularly competitive in the last few years as Domino's, Pizza Hut and Papa John's have turned to more enhanced technology to improve the ordering experience. While it’s becoming easier than ever to have pizza delivered hot and fresh, Papa Murphy’s take-and-bake seems to be less compelling.

A new app that it launched last fall may be putting it back on track. The app generated over 243,000 downloads, CEO Weldon Spangler said during a March earnings call, and makes ordering easier while also integrating with its POS system. New capital from MTY could also help keep the company innovating and become more competitive going forward.