Restaurant Acquisitions: Who Looks Like a Compelling Target?
With Darden Restaurants' (DRI) recently announced offer to buy Ruth's Hospitality Group (RUTH) , I am wondering what other names might be potential targets among publicly traded restaurants. This is not even speculation at this point, but rather a shallow dive into names that could sensibly be taken private, or be taken out by a bigger restaurant fish.
Here goes...
Cracker Barrel (CBRL) , one of my favorite chains, is an interesting target for several reasons.
First, it is a well-known brand, and has developed quite a following. The company's retail operations, which you must walk through in order to get to the dining room, have drawn some fire from activist investors over the years, but it is part of the company's charm, and what makes it fun to visit. The retail piece might not be a selling point, but it is part of what has endeared the brand to consumers. Strong brands can be valuable brands.
Second, Cracker Barrel is more than a restaurant. I also consider it to be a real estate company. As of September, the company owned 360 of its 717 locations. That's a formidable real estate portfolio; an asset that brings with it monetization possibilities, and the company has monetized real estate in the past.
One of the most recent deals occurred in 2020 when Cracker Barrel sold 64 locations to Oak Street Capital for $206 million in a sale and leaseback transaction. A separate deal with Oak Street at the same time had CBRL selling 62 other locations for $150 million.
Third, CRBL shares are on the cheaper side, trading at about 13.5x 2024 and 2025 consensus earnings estimates (July year-end). The stock had a rough run over the past several years; a price chart will show it trading at the same level as 2014. That does not tell the whole story though, as CBRL has paid out a lot in dividends over the past 10 years or so, including the following special dividends:
2015: $4.10
2016: $4.40
2017: $4.70
2018: $5.00
2019: $4.30
2021: $1.00
The current regular quarterly dividend of $1.30/share equates to a 5.3% yield.
I am not proclaiming that a bid for CBRL is imminent, but rather that is has characteristics that would make it an interesting target.
While I don't currently own CBRL directly, I do hold shares of Biglari Holdings (BH) (BH.A) , which owns about 9% of CBRL, and recently put a nominee on CBRL's board of directors after several failed attempts.
More possibilities to come in future columns.
At the time of publication, Heller was long BH and BH.A.