Dive Brief:
- Toronto-based Onex Group has sold Alabama-based Jack's Family Restaurants, though terms and the buyer's identity were not disclosed, according to Restaurant Business.
- Onex received $835 million in proceeds from the transaction, which is 3.6 times its original investment from 2015.
- In a statement, Onex Managing Director Matt Ross attributed Jack's differentiated concept, high-quality food and exceptional customer service for the high valuation.
Dive Insight:
As the restaurant segment continues to get more crowded, and segment lines continue to blur thanks to convenience-driven initiatives like delivery, the chains that differentiate themselves will have the biggest advantages in an active M&A environment. This is why Cooper's Hawk, an upscale casual chain with a wine club, reportedly sold for $700 million last week, a valuation multiple of at least 17.5 times EBITDA.
It could also explain why Jack's earned 3.6 times its original transaction with this sale. The company focuses on handmade burgers, biscuits, chicken and shakes and has solidified a loyal following in its Southeast base.
Recent private equity acquisitions show a relatively high level of confidence in the restaurant industry. That doesn't mean, however, that other chains on the selling block will fetch similarly high price tags. Perkins & Marie Callender's are up for sale and are reportedly weighing bankruptcy protection. The legacy chain has struggled in an intensifying breakfast space that is now starting to dip its toes into delivery.
But that's no reason to lose hope for a Perkins sale. According to S&P Global, the restaurant industry as a whole has experienced an uptick in private equity investments in the past year or so, targeting both struggling chains that are good turnaround opportunities, and strong brands that can continue on a growth trajectory.
Jack’s falls into the latter category. Restaurant Business reports that the chain generated $163.3 million in 2018, an increase of 7.1% from 2017. This pace should continue. Technomic predicts that casual dining sales should experience a 3.4% growth in sales this year, up from last year’s pace of 3.2%. If the economy keeps chugging along, that growth should be realized. Casual dining growth typically reflects stronger consumer confidence as they're willing to spend a little more on table service.
According to Stifel, private equity will continue to drive heavy M&A activity in the restaurant space throughout this year, with investors specifically looking for companies that are positioned well for growth. Jac'ss fits this bill, with over 160 locations in just four states, the runway is long for growth.
