Restaurants M A R K E T M O N I T O R S U M M E R 2014 RESTAURANTS

Transcription

1 Restaurants M A R K E T M O N I T O R S U M M E R

2 Contents Industry Update Public Stock Performance & Valuations M&A Activity & Valuations Moss Adams Overview Contact Information

3 YoY Change Cost Pressures in Wages and Inputs Raise Food Prices 13 states have announced increases in minimum wage levels effective within the next two years Largest wage increases in MN ($6.15 to $9.50 by 8/1/16), D.C. ($9.50 to $11.50 by 7/1/16), and MA ($8.00 to $10.00 by 1/1/16) Obama administration pushing for an increase of the federal minimum wage from $7.25 to $10.10 as well as an increase of minimum wages for tipped workers from $2.13 to $4.90 Labor and food costs have risen well above the inflation rate, putting pressures on margins, however $12.00 $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 Announced Increases in Minimum Wage Effective 2016 Effective 2015 Effective 2014 CA CT DE D.C. HI MD MA MI MN NY RI VT WV Restaurants across the nation transferring commodity price increases to consumers Droughts in California, Brazil, and other key exporters of food inputs have drastically spiked prices of products such as cheese, beef, pork, limes, and others 92% of restaurants plan to increase menu prices, including national chains such as Chipotle Mexican Grill and Starbucks (compared to 83% in 2013) Menu price increases are expected to average 1.8% 50% 40% 30% 20% 10% (10%) (20%) Changes in Restaurant Input Costs FAO Food Price Index Meat Price Index Dairy Price Index Cereals Price Index Oils Price Index Sugar Price Index (30%) Month/Year Source: United Nations Food and Agriculture Organization (FAO), National Conference of State Legislatures, Nation s Restaurant News, Wall Street Journal, US Department of Labor 3

4 Restaurants Lag Behind Overall Market Over the past two years, fast food/quick service (25% growth) and casual dining restaurants (31% growth) have lagged behind the S&P 500 (47% growth) Indexed Stock Price Performance 2 Years 60% 50% 40% 30% 20% Fast Food/QSR Casual Dining S&P 500 S&P % Casual Dining 31% Fast Food/QSR 25% 10% (10%) Note: The indices in the chart above are composed of the public companies included on slide 6 and 7. Source: CapitalIQ. 4

5 EV/ Public Restaurant Company Multiples Reflect Anticipated Growth The outlook for companies in the Restaurant indices is neutral, with both fast food and casual dining segments slightly underperforming the S&P 500 in estimated growth for the next year However, casual dining is expected to outperform the S&P 500 by 170bps over the next year in sales growth Multiples for fast food and casual dining restaurants currently trade at 12.5x and 11.4x EV/ on a basis Both restaurant segments are trading at EV/ multiples above the general public market, signally strong expectations of future growth Next 12 Months: Estimated Growth Public Market Valuations S&P % 17.2% 13.0x 12.0x 11.0x Fast Food/QSR 12.5x Casual Dining 11.4x Casual Dining Fast Food/Quick Service 6.2% 9.1% 15.5% 14.7% Est. NTM Growth Est. NTM Sales Growth 10.0x 9.0x 8.0x 7.0x 6.0x 5.0x Fast Food/QSR S&P 500 Casual Dining S&P x 5.0% 10.0% 15.0% 20.0% 4.0x Note: The Restaurant indices are composed of the public companies included on slide 6 and 7; values may differ slightly due to market capitalization weighting Source: CapitalIQ. 5

6 Restaurants Trade at Over 80% of 52Week Highs ($ in millions, except where noted and per share amounts) Fast Food/QSR Company Name 7/14/14 Share Price 52Week High Market Cap Net Debt Enterprise Value Sales Margin Sales Sales EV Multiple NTM Enterprise Value $10bn+ McDonald's Corp. $ $ $ 99,306 $ 11,183 $ 110,489 $ 28,201 $ 10, % 3.6% 5.7% 3.9x 10.9x 3.8x 10.5x Yum! Brands, Inc $ ,763 2,285 39,048 13,273 2, % 11.3% 13.6% 2.9x 13.6x 2.6x 12.3x Chipotle Mexican Grill, Inc $ ,803 (707) 18,096 3, % 20.0% NA NM NM 4.4x 23.9x Burger King Worldwide, Inc $ ,365 2,167 11,532 1, % 1.9% 9.4% NM 17.3x NM 16.2x Median $ 27,783 $ 2,226 $ 28,572 $ 8,333 $ 1, % 7.5% 9.4% 3.4x 13.6x 3.8x 14.3x Enterprise Value $1bn$10bn Tim Hortons Inc ,453 1,165 8,618 2, % 14.6% 19.9% 2.9x 11.9x 2.5x 10.0x Dunkin' Brands Group, Inc ,782 1,618 6, % 7.9% 22.9% NM 19.3x NM 16.1x Domino's Pizza, Inc ,097 1,492 5,589 1, % 5.4% 10.3% 3.0x 16.2x 2.9x 14.9x The Wendy's Company ,052 1,077 4,129 2, % (15.2%) 14.1% 1.7x 12.1x 2.0x 10.5x Panera Bread Company ,067 (101) 3,966 2, % 8.4% 5.4% 1.6x 9.6x 1.5x 9.4x Jack in the Box Inc , ,847 1, % (0.8%) 4.9% 1.9x 11.0x 1.9x 10.6x Papa John's International Inc , ,895 1, % 7.0% 11.8% 1.3x 13.1x 1.2x 12.3x Sonic Corp , , % 3.4% 11.6% 3.0x 12.0x 2.9x 11.6x Popeyes Louisiana Kitchen, Inc , % 14.7% 13.0% 4.8x 15.2x 4.2x 13.9x Median $ 3,052 $ 501 $ 3,966 $ 1,485 $ % 7.0% 11.8% 2.4x 12.1x 2.3x 11.6x Enterprise Value Under $1bn Krispy Kreme Doughnuts, Inc (42) % 9.0% 16.7% 2.0x 15.6x 1.9x 14.1x Carrols Restaurant Group, Inc % 3.2% 41.3% 0.7x 13.8x 0.6x 10.6x Einstein Noah Restaurant Group, Inc % 5.0% 19.9% 0.9x 8.6x 0.8x 7.4x Nathan's Famous Inc (33) % 15.0% NA 2.5x 16.2x 2.2x NA Median $ 278 $ 105 $ 429 $ 461 $ % 5.0% 19.9% 0.9x 13.8x 0.8x 10.6x Data NTM Est. Growth Sales NTM Group Average $ 11,512 $ 1,266 $ 12,778 $ 3,627 $ 1, % 6.7% 14.7% 2.4x 13.5x 2.4x 12.8x Group Median $ 3,052 $ 433 $ 3,966 $ 1,479 $ % 7.0% 13.0% 2.3x 13.4x 2.2x 11.9x Note: Not meaningful (NM) if EV/Sales is greater than 5x, or EV/ is greater than 20x. NA if denominator is 0, for percentages and multiples, or if estimates are not available. NTM figures are based on the median estimate of Wall St. analysts. Source: CapitalIQ, company filings and Moss Adams Capital research. 6

7 Restaurants Trade at Over 80% of 52Week Highs ($ in millions, except where noted and per share amounts) Casual Dining Company Name 7/14/14 Share Price 52Week High Market Cap Net Debt Enterprise Value Sales Margin Sales Sales EV Multiple NTM Enterprise Value $1bn+ Darden Restaurants, Inc. $ $ $ 5,870 $ 2,658 $ 8,527 $ 6,286 $ % 6.9% 21.8% 1.4x 13.5x 1.3x 8.2x Brinker International, Inc , ,788 2, % 3.2% 9.1% 1.3x 9.0x 1.3x 6.7x Buffalo Wild Wings Inc ,958 (80) 2,878 1, % 15.8% 18.7% 2.2x 13.5x 1.9x 5.5x DineEquity, Inc ,472 1,243 2, % (0.4%) (1.8%) 4.2x 10.1x 4.2x 2.5x Cracker Barrel Old Country Store, Inc , ,686 2, % 3.3% 9.1% 1.0x 9.9x 1.0x 9.5x The Cheesecake Factory Incorporated , ,286 1, % 7.1% 12.0% 1.2x 9.7x 1.1x 7.5x Texas Roadhouse, Inc ,769 (37) 1,732 1, % 9.8% 16.8% 1.2x 10.0x 1.1x 7.6x Bob Evans Farms, Inc , ,546 1, % 5.2% 24.0% 1.2x 11.4x 1.1x 7.9x Fiesta Restaurant Group, Inc , , % 11.8% 17.9% 2.2x 17.6x 2.0x 6.8x Red Robin Gourmet Burgers Inc ,036 1, % 14.0% 17.5% 1.0x 9.4x 0.9x 8.5x Median $ 1,996 $ 196 $ 2,486 $ 1,395 $ % 7.0% 17.1% 1.3x 10.1x 1.2x 7.6x Enterprise Value $500mm+ BJ's Restaurants, Inc (44) % 10.2% 11.3% 1.2x 12.1x 1.1x 9.6x Biglari Holdings Inc % NA NA 1.2x 18.0x NA NA Denny's Corporation % 1.5% 10.6% 1.6x 9.7x 1.6x 5.9x Ruby Tuesday, Inc , % (0.3%) 19.9% 0.6x 12.6x 0.6x 28.2x Del Frisco's Restaurant Group, Inc (16) % 15.3% 19.7% 2.1x 14.5x 1.9x 6.0x Zoe's Kitchen, Inc (25) % 37.0% NM 4.3x NM 3.1x 10.2x Median $ 599 $ 79 $ 693 $ 616 $ % 10.2% 15.5% 1.4x 12.6x 1.6x 9.6x Enterprise Value Under $500mm Chuy's Holdings, Inc % 20.6% 25.1% 2.2x 18.1x 1.8x 7.1x Ruth's Hospitality Group Inc % 5.5% 10.7% 1.1x 9.2x 1.0x 7.8x Famous Dave's of America Inc % 0.1% 7.8% 1.4x 12.0x 1.4x 8.6x Kona Grill Inc (2) % 18.8% 23.2% 2.0x NM 1.7x 11.0x Luby's, Inc % 0.6% NA 0.5x 9.6x 0.5x NA Frisch's Restaurants, Inc % 1.9% NA 0.6x 6.2x 0.6x NA Ark Restaurants Corp % 2.7% NA 0.6x 6.0x 0.5x NA Median $ 192 $ 11 $ 202 $ 204 $ % 2.7% 16.9% 1.1x 9.4x 1.0x 8.2x Data NTM Est. Growth Sales NTM Group Average $ 1,235 $ 266 $ 1,502 $ 1,101 $ % 8.7% 15.2% 1.6x 11.5x 1.4x 8.7x Group Median $ 709 $ 34 $ 901 $ 644 $ % 6.2% 17.1% 1.2x 10.1x 1.2x 7.8x Note: Not meaningful (NM) if EV/Sales is greater than 5x, or EV/ is greater than 20x. NA if denominator is 0, for percentages and multiples, or if estimates are not available. NTM figures are based on the median estimate of Wall St. analysts. Source: CapitalIQ, company filings and Moss Adams Capital research. 7

8 Number of Transactions EV/Trailing Multiple Middle Market M&A: Volume and Values Up Slightly Over Last Quarter, Up Significantly Over Last Year U.S. middle market M&A transaction volume in Q rose 23% from one year ago and was up slightly versus Q In deal value terms, U.S. middle market M&A activity in Q grew approximately 40% from one year earlier and was up more than 27% compared to the prior quarter Significant amounts of cash on corporate balance sheets and in private equity funds, coupled with robust debt markets, continues to drive deal activity Q multiples for middle market transactions declined after enjoying two quarters of transactions that were valued almost one full turn higher in multiples are approximately where they were one year ago and inline with most of the last two years Q margins of reportable transactions were virtually unchanged from last quarter but are still more than 2% higher than they were one year ago U.S. Middle Market M&A 1 U.S. Middle Market M&A Valuations 2 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 2,855 2,953 2,927 3,080 2,984 $32 $43 Number $56 $55 $47 Value 3,986 3,852 3,682 3,681 3,622 3,539 3,453 $71 $72 $70 $52 $56 $52 $66 3,319 3,134 $44 $50 4,092 4,054 3,997 4,095 $65 $71 $55 $70 $140 $120 $100 $80 $60 $40 Transaction Value ($bn) 8.0 x 7.0 x 6.0 x 5.0 x 4.0 x 3.0 x 2.0 x 4.8x 6.7x 6.4x 7.0x EV/ 6.7x 6.8x 6.8x 6.9x 5.9x 6.4x 15.0% 14.2% 15.3% 14.5% 16.7% 16.6% 16.9% 15.0% 12.4% 13.0% 14.6% 6.2x 6.2x Margin 6.4x 6.0x 6.2x 16.7% 15.3% 14.8% 13.7% 7.2x 10.6% 7.0x 6.1x 17.0% 17.0% 40% 35% 30% 25% 20% 15% 10% Margin 500 $ x 5% 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 $0 0.0 x Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 0% ) Middle market M&A includes transactions with undisclosed values, and disclosed values where EV < $500 million. 2) Middle market M&A includes transactions with disclosed, where EV < $500 million and EV/ < 10x. Note: transactions with disclosed represent <5% of all transactions. Source: CapitalIQ. 8

9 Recent Restaurant Transactions $ millions Date Status Acquirer/Investor Target Target Description Enterprise Value Revenue EV Multiple 6/25/2014 Closed Arsenal Watertown Holdings LLC Friendly's Ice Cream, LLC Restaurant chain selling ice cream 6/25/2014 Closed Private Investor Uncorked LLC Pub 6/25/2014 Closed Southern Deli Holdings LLC McAlister's Deli Located in Renaissance Center Fast food restaurant 6/23/2014 Closed Food Management Partners, Inc. The Silver Spoon Bakery Food services 6/23/2014 Closed Private Investor Mr. B's Pub, Inc. Pub and club. 6/20/2014 Closed Brentwood Associates Anodyne Coffeehouse Operates a café 6/20/2014 Announced Cerberus Business Finance, LLC S.B. Restaurant Company Operates tropicalthemed restaurants 6/16/2014 Announced Private Investor 11 Wendy s Restaurants Operates community oriented cafes 6/16/2014 Closed Zi Pani BB's Bagels & Bread LLC Offers breakfast and lunch 6/12/2014 Effective Private Investor Villaggio at The Regatta Operates as a restaurant 6/11/2014 Closed Hakkasan Ltd. The H.Wood Group Nightlife and events company 6/11/2014 Announced NPC Quality Burgers, Inc. Carlisle Corporation, 56 Wendy's Restaurants Fast food restaurant $ x 6/6/2014 Announced MUY Pizza Minnesota, LLC Sky Ventures LLC, Six Pizza Hut Locations 6 pizza restaurants 1.0 6/4/2014 Closed Kelly Capital Investments, L.L.C. S.S. of Kansas, Inc. Operates chain of restaurants 6/3/2014 Closed Bg Capital Group, Ltd. Cowboys Saloon Davie, LLC Nightclub 6/3/2014 Closed SMG Premier Food Services, Inc. Provides food and beverage services 5/28/2014 Closed Private Investors Pavilion 117 Operates a sports bar 5/27/2014 Closed Ferris Coffee and Nut Company Inc. Track Enterprises, Inc. Coffeehouse 5/27/2014 Announced Private Investors Sagamore Dining Partners, LLC Serves noodle and pasta dishes /27/2014 Closed Public Investors Flynn Restaurant Group LLC Franchises restaurants Source: CapitalIQ, news releases, Moss Adams Capital research. 9

10 Notable Restaurant Transactions Past Two Years $ millions Date Status Acquirer/Investor Target Target Description Enterprise Value Revenue EV Multiple 5/15/2014 Announced Golden Gate Capital Red Lobster Seafood Co. Casual dining seafood restaurant $2, x 9.2x 1/15/2014 Closed Apollo Global Management, LLC CEC Entertainment Inc. (nka: Chuck E. Cheese's) Family dining and entertainment centers 1, x 7.9x 7/21/2012 Closed JAB Holdings B.V.; BDT Capital Partners, LLC Peet's Coffee & Tea, Inc. Specialty coffee chain x 22.1x 7/12/2012 Closed Darden Restaurants, Inc. Yard House USA, Inc. Americanstyle casual restaurant x 20.2x 12/6/2012 Closed BDT Capital Partners, LLC; JAB Beech Inc. Caribou Coffee Company, Inc. Coffeehouse x 11.3x 12/17/2012 Closed Apple American Group, LLC Southern Bells, Inc. (nka:bell American Inc.) Restaurant chain x 2/6/2013 Cancelled Landry's, Inc. Ark Restaurants Corp. Owns restaurants and bars x 5.3x 6/11/2014 Announced NPC Quality Burgers, Inc. Carlisle Corporation, 56 Wendy's Restaurants Fast food restaurant x 2/6/2013 Closed Ignite Restaurant Group, Inc. Mac Parent LLC Macaroni grill restaurant x 1/28/2013 Closed Le Duff America Inc. Mimi's Café, LLC Restaurant chain x 3/30/2014 Closed Apex Restaurant Management, Inc Morgan's Foods Inc. Yum! Brands franchisee x 7.1x 11/19/2013 Closed NPC Quality Burgers, Inc. The Wendy's Company, 53 Wendy's Restaurants Fast food restaurant x 3/13/2014 Cancelled Chatham Credit Management III, LLC Furr's Restaurant Group, Inc. BBQ restaurant x 8.4x 7/13/2012 Closed AMC Wings, Inc. Nine Restaurants in Indiana and Illinois Buffalo Wild Wings locations x 6/20/2013 Closed NPC Quality Burgers, Inc. Value Foods Company, LLC, 13 Franchised Wendy's Restaurants Wendy's Restaurants franchisee x 11/21/2012 Closed Paradise Cheeseburgers, LLC Paradise Restaurant Group, LLC Burger restaurant x 2/20/2013 Cancelled 4/17/2013 Closed Big Three Restaurants, Inc. (nka:sports Venues of Florida, Inc.) HillStreet Capital Inc.; The HillStreet Fund IV, L.P. 904 Las Olas, Inc. Diversified restaurant operator x Flat Out Crazy, LLC Asianstyle restaurants x Source: CapitalIQ, news releases, Moss Adams Capital research. 10

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