Private equity is expected to return to the restaurant industry after nearly two years, said several industry sources. Active deals with the potential for private equity involvement include CKE Restaurants and California Pizza Kitchen. Other potential buyout targets include Landry's Restaurants, Red Robin, Ruby Tuesday, O'Charley's, and Cosi, according to the sources and recent reports from this news service.
Now that the debt market and the economy are starting to show signs of recovery and consumer spending is on the rise, investors are taking notice and going on the hunt for the next deal, said the sources, which included two industry consultants, an executive and an industry banker.
Recent sale processes, including auctions of Richardson, Texas-based chicken wing chain Wingstop and Vancouver, Washington-based pizza chain Papa Murphy's, attracted multiple bidders, said the consultant and the banker. Although Wingstop was sold to Roark Capital, PE firm Gemini Investors was also interested and is now on the lookout for restaurant chains with potential to grow by opening new locations, according to media reports.
Other financial sponsors interested in the space include Sun Capital, Madison Dearborn, Castle Harlan, Bain Capital, Bruckmann, Rosser, Sherrill & Co, Leonard Green, and Cerberus Capital, which have all previously invested in the space, said the sources. Levine Leichtman, which is in the process of acquiring Rubio's, could make additional restaurant buys, said the banker.
Over the last two years restaurants have been struggling, with the casual dining space hurting the most, one of the consultants said. Restaurant chains experienced slower growth and scaled back on opening new locations because of sluggish foot traffic. As the economy starts to take a turn for the better, public companies are receiving interest as LBO candidates.
Landry's Restaurants, as well as Red Robin, which recently added three new board members after activist shareholders became involved, are buyout targets in the current environment, said both consultants.
By Ellena Kleinman, Tamika Cody and Rebecca Wenzel
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