Denny’s is the latest chain to be taken private. It won’t be the last. | Photo: Shutterstock.
When Wall Street loses its taste for restaurants, private-equity groups get an appetite.
Over the past few weeks, had the sale of Denny’s to a trio of investment firms for $630 million.
That follows the sale of Del Taco to Yadav Enterprises, which is also involved in the Denny’s deal. And it comes just days after Yum Brands said that it is exploring strategic options for Pizza Hut. Noodles & Company is on the market. The sandwich chain Potbelly was also recently sold.
Welcome to the latest take-private era. A lot of restaurant chains have seen their valuations take a massive hit over the past year or two, which has made for a ripe environment for investment firms to take their chances on a deal or two. In some cases, companies’ valuations fall to a point where potential buyers believe they’re a potentially strong investment.
In the case of multibrand companies, executives and boards under pressure from Wall Street decide they either can’t or won’t turn around a struggling concept.
We do not expect this trend to stop anytime soon, absent a massive change in sentiment regarding the consumer or the restaurant environment. Wendy’s, for instance, has lost nearly half its value and is in leadership limbo right now. But the company is a well-known brand with a quality proposition and could be ripe for a takeover.
Then there is the almost-constant reports, rumors and speculation about Papa Johns, which has had more suitors than an AI startup. This week, a fake report that the company was nearing a deal with TriArtisan led the company’s stock to surge more than 20% on Monday. Several media outlets—including this publication—fell for the piece.
Regardless, it certainly wasn’t out of the realm of reason. Papa Johns has had more rumored and reported suitors than an AI startup. Over the years, Inspire Brands and Restaurant Brands International have been said to be interested in the pizza chain. Apollo Global Management has also reportedly been eyeing the chain and reportedly pulled a $2.1 billion offer for the company, according to reports. It was on the market before the pandemic before Starboard Value invested in the chain.
Papa Johns CEO Todd Penegor last week said the company was “open-minded” about a potential sale.
“As a board and a management team, we are focused on maximizing shareholder value. We are open-minded about the path to do that,” Penegor said. “To the extent there is an alternative to our strategy that is available and maximizes shareholder value, we would fully consider it.
“At this time, the opportunity before the company to drive the greatest value creation is through the execution of our transformation strategy, and that is where we have directed our attention.”
The restaurant business faces a number of questions, with consumers pulling back on dining out, especially at fast-food chains, and a value push that has called into question the industry’s profitability, again.
Yet for all those questions, restaurants remain popular with consumers and relatively recession-resistant. Chains like Chili’s have demonstrated that even concepts in historically weak sectors can recover fast with the right combination of operations, marketing and luck.
An investor with more patience than Wall Street, in other words, can take a bet on a long-term turnaround.
Editor’s note: This story has been updated to correct a reference to a report of the Papa Johns sale.
