Tue, Nov 03, 2020 page10

• Inspire Brands becomes dining giant in Dunkin’ deal

  EXPANDING FOOTPRINT: Adding Dunkin’ Brands gives Inspire its first chain focused on coffee and breakfast, a market facing turbulence from the COVID-19 pandemic

  • Bloomberg
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  Just two years after its founding, Inspire Brands Inc took a major step toward its goal of building a full-spectrum collection of restaurants with the US$11.3 billion acquisition of Dunkin’ Brands Group Inc.

  The deal announced on Friday, whose price includes assumed debt, is the restaurant industry’s second-largest transaction and its most expensive at about 23 times earnings before interest, taxes, depreciation and amortization.

  Adding Dunkin’ Brands gives Roark Capital Group-backed Inspire its first chain focused on coffee and breakfast, a market facing turbulence from the COVID-19 pandemic.

  

  People walk past a Dunkin’ store in New York City on Monday last week.

  Photo: AFP

  Since bursting onto the scene in 2018 with the merger of Arby’s and Buffalo Wild Wings, Inspire has acquired Sonic Corp and Jimmy John’s, giving it more domestic locations than industry stalwarts such as Wendy’s.

  One analyst said that while the breakfast chain has done well in the shifting environment, the valuation is “aggressive” and unlikely to stir any rival bids.

  Inspire would take Dunkin’ private at US$106.50 a share, the companies said in a statement on Friday. That represents a 20 percent premium over the closing price of Oct. 23, before reports of the deal talks sent shares soaring, and 6.8 percent higher than Friday’s close.

  With Dunkin’ Brands, Inspire would almost triple its number of restaurants to 31,600 worldwide, ahead of Burger King-owner Restaurant Brands International Inc and trailing only Taco Bell parent Yum! Brands’ 50,000 global locations.

  The addition of Dunkin’ would also escalate Inspire’s systemwide sales, a measure that includes sales by franchisees, to US$26 billion from US$14.6 billion.

  Inspire was cofounded by former Arby’s CEO Paul Brown and Neal Aronson, who started private-equity firm Roark Capital. Inspire is seen as actively involved in the operation of its portfolio companies, pushing changes such as new menu items to reinvigorate sales.

  The company “is best known for its turnaround efforts,” KeyBanc analyst Eric Gonzalez said in an Oct. 25 note.

  While Dunkin’ does not need a turnaround, the company has recovered from the impact of COVID better than peers, making it a good target to buy with debt, Gonzalez said in a phone interview on Sunday.

  “You are essentially going through a major stress test. It gives you a little bit more confidence to be able to handle a higher level of leverage,” Gonzalez said.

  Roark also tends to hold its investments over a longer period of time than other private equity firms.

  Brown told the Wall Street Journal in 2018 that he wanted to organize Inspire like the Hilton hotel chain, where he once worked, with “brands that span multiple occasions.”

  That is unusual in the restaurant industry, where multibrand companies typically own similarly focused chains.

  Roark Capital made another restaurant bet during the pandemic, investing US$200 million in Cheesecake Factory in April.

  With US$19 billion of assets under management, the Atlanta-based private equity firm has a portfolio that spans across food, health and wellness.

  Roark Capital said it was named after the protagonist in Ayn Rand’s book The Fountainhead for its commitment to contrarian viewpoints.
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