Dive Brief:

• Yum Brands has entered into an agreement to acquire The Habit Burger Grill for $375 million, or $14 per share in cash, according to a press release. The deal is expected to close by the end of Q2 2020. 
• "We've emerged from our three-year transformation stronger and in a better position to accelerate the growth of our existing brands and leverage our scale to unlock value from strategic acquisitions," Yum Brands CEO David Gibbs said in a statement. 
• Following the completion of the transaction, The Habit Burger will remain based in Irvine and will be managed by president and CEO Russell Bendel and CFO Ira Fills.

Dive Insight:

Restaurant merger and acquisition activity has already started off with a bang with the announcement of 2020’s first acquisition in the industry. This deal is also Yum’s first acquisition since it went public in 1997, according to The Wall Street Journal, and follows months of rumors that the company was considering acquisitions. It also will likely round out the company’s portfolio, which did not include a burger brand.

After a three-year transformation, which included selling Yum’s China portfolio in 2016 after a slew of problems with poultry providers, the company appears to be on the right track and willing to spend its capital. Its transformation involved being more focused, more franchised and more efficient. By Q3 2019, all three of the company’s brands posted positive, single-digit comp sales growth with worldwide same-store sales rising 8%.

The Habit Burger will likely be a good fit for Yum, especially since the burger chain has been exploring drive-thrus and bolstering its delivery and pickup options of late. The burger chain will likely benefit from Yum’s deal with Grubhub as well, especially since The Habit has been looking for ways to make delivery more profitable, such as increasing menu prices for delivery orders. The Habit also plans to grow to over 2,000 locations under Yum Brands and will be run independently within Yum, according to the Wall Street Journal.

The burger chain also posted a modest 3.1% increase of comparable sales during Q3 2019 and an increase in revenue of 12.1%. The company said in an earnings release that it expected comp sales to grow around 3% to 3.5% for the year with revenue at around $463 million to $465 million. Adding an emerging brand, especially one that has been particularly keen on international expansion, should only add to Yum’s profitability.