Private equity suitors reportedly wooing Papa John's

Dive Brief:

Bain Capital and CVC Capital Partners are two potential private equity suitors looking to acquire Papa John’s International, anonymous sources told Reuters on Tuesday.
This is the latest rumor in the battle for control over the world’s third largest pizza chain as founder and former CEO/chairman John Schnatter, who resigned in July, continues to hold 30% ownership. Since his resignation, Schnatter has lobbied the company to amend the poison pill provision it adopted in July so he can shop for interested bidders.
Other firms rumored to be eyeing a Papa John’s acquisition include KKR & Co Inc. and Roark Capital. Hedge fund Trian Fund Management, which invests in Wendy’s, has also expressed interest in an investment if a deal isn’t reached. Binding offers are expected in the next few weeks.

Dive Insight:

The rumor mill continued to churn Wednesday over the fate of Papa John’s as the board explores a sale as a “strategic alternative” to remedy hemorrhaging sales following Schnatter’s ouster in July. Financial analyst firm Zacks Equity Research predicts an 11% drop in revenue for the company ahead of its Q3 earnings report next week and, so far this year, Papa John’s has lost a fifth of its value.

Without the actual earnings report finalized, it’s hard to tell just how much, if at all, Papa John’s initiatives have helped rein in the post-Schnatter fallout. The company has worked hard to distance itself from its founder, undergoing a rebranding overhaul that removes his likeness from all marketing collateral and launching a commercial that highlights employees instead of the longtime spokesman.

Still, the promise of a private equity firm fixing the fundamentals and turning the company around is exciting investors — with shares up nearly 10% after Tuesday’s report. It’s likely this specific stable of suitors has them even more perked up. Bain, for example, has deep experience in the pizza segment, yielding a 500% return on its investment in Domino’s throughout 12 years. Roark’s largest sector is the restaurant industry, with a portfolio that ranges from Carl’s Jr. and Arby’s to Cinnabon and Jamba Juice. Trian’s Wendy’s has experienced 20-plus consecutive quarters of same-store sales growth.

Experience aside, that doesn’t mean Papa John’s will bite. The company may very well see enough post-Schnatter improvement to focus on a comeback in 2019. Yum! Brands’ earnings report Wednesday showed, despite Papa John’s struggles, Pizza Hut continues to “play third fiddle” to both Domino’s and Papa John’s, according to GlobalData Retail’s Neil Saunders. This could provide some incentive to stay the course.

Additionally, there are rumors — on top of the acquisition rumors — that “several private-equity firms” have turned down Schnatter out of reputational concerns. As QSR reports, Schnatter’s 30% stake could be a barrier to any potential deal. Papa John’s CEO Steve Ritchie has vowed to move on from the Schnatter era and has put some of the pieces into place to do just that. But Schnatter — and his website savepapajohns.com — doesn’t seem as ready to move on.