Private-equity firms are targeting struggling U.S. restaurant chains, betting they can acquire the beaten-down businesses, revive their fortunes away from public-market scrutiny, and eventually cash out.
But a successful turnaround is not guaranteed.
This time around, the takeover bids are coming as the restaurant industry faces mounting pressure: at the same time elevated food and labor costs are squeezing margins, budget-conscious consumers are cutting back on eating out.
The challenge is particularly difficult for mature national chains. They need to invest in store renovations, menu innovation, technology, and marketing to regain customers, but weaker sales could constrain their ability to spend when earnings are constantly under watch.
Private ownership could offer some breathing room. Without quarterly earnings expectations and daily stock-price scrutiny, companies can pursue multiyear turnarounds, close underperforming locations, and accept temporary profit declines.
That prospect has attracted investors looking to take struggling restaurant chains private.
On Wednesday, Nelson Peltz's Trian Fund Management and partners offered $7.35 a share in cash to acquire Wendy's, a 20% premium to Tuesday's closing price. Wendy's said an independent board committee is evaluating the unsolicited, nonbinding offer.
On the same day, Bloomberg reported that Dine Brands, owner of Applebee's and IHOP, received an acquisition offer of $39 a share from Cobblers Cove Capital and Arkhouse Management, citing people familiar with the matter.
Dine Brands hasn't confirmed the reported offer, but said on Thursday that it had adopted a shareholder rights plan -- commonly called a poison pill -- to prevent investors from gaining control without paying shareholders an appropriate premium.
In March, The Wall Street Journal reported that Papa John's had attracted interest from Qatari-backed Irth Capital. But Papa John's appears reluctant to sell, noting that executing its own turnaround plan offered the best opportunity to create value.
A few restaurant chains have already left public markets. Denny's completed its acquisition by TriArtisan Capital, Treville Capital, and Yadav Enterprises in January. Last year, sandwich chain Potbelly was acquired by RaceTrac, a privately held convenience-store operator.
It's not uncommon for restaurant companies to move between public and private ownership as market conditions shift.
Following the financial crisis, Burger King went private in a $4 billion acquisition by 3G Capital in 2010. The burger chain returned to public markets less than two years later, allowing 3G to cash out part of its investment with gains.
Likewise, Bloomin' Brands, parent of Outback Steakhouse, returned to the stock market in 2012, five years after being taken private by Bain Capital and other investors. Dave & Buster's and Krispy Kreme have followed a similar path as well.
But private ownership isn't a guaranteed solution. Buyout firms often rely heavily on borrowed money to finance acquisitions, potentially saddling already-struggling restaurant chains with additional debt. Cost-cutting might also undermine food quality, service, and franchisee relationships.
Apollo Global Management took Carl's Jr. and Hardee's parent CKE Restaurants private in 2010. But CKE's attempted return to public markets in 2012 faltered amid concerns about its heavy debt load. California Pizza Kitchen, taken private by Golden Gate Capital in 2011, filed for bankruptcy nine years later, burdened by debt and pandemic-related disruptions.
Inspire Brands, the Roark Capital-backed owner of Dunkin', Arby's and Buffalo Wild Wings, filed confidentially for an initial public offering in May, hoping to raise capital to pay down debt. But The Wall Street Journal reported in September that the company was unlikely to go public this year unless restaurant stocks recovered.
To be sure, not every buyout involves additional borrowing. Trian's latest Wendy's proposal, for example, explicitly says the transaction wouldn't require new debt.
For shareholders, a takeover premium offers a potential exit from years of disappointing returns, but it doesn't guarantee a successful turnaround. Changing ownership is easy, changing the business is harder.
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