Unlocking Opportunities Amidst 2021's Record-High M&A Activity

Despite operating challenges in the current environment, or perhaps because of them, 2021 was a big year for restaurant acquisitions. M&A activity was one of the biggest restaurant industry news stories of the year. Duff & Phelps, a financial services firm that tracks restaurant M&A activity, found that there were a record-high 381 deals in the 12 months that ended Sept. 30, 2021, and predicted a busy 2022. This past year has seen many big acquisition stories, with the 1 billion dollar acquisition of Firehouse Subs by Restaurant Business International being the largest. Other notable restaurant M&A transactions include:

• Jack In the Box’s $575 million acquisition of Del Taco
• Fat Brands’ acquisition of Twin Peaks and Global Franchise Group (for $300 million and $442.5 million, respectively)
• NPC International’s $801 million sale of its Wendy’s and Pizza Hut units

There are also numerous benefits for consolidated companies, such as the ability to share services like payroll and procurement across central operating functions. Larger companies typically have more resources devoted to performing data analytics and restaurant market research. When restaurants operate on a larger scale, they can lower the cost of capital and invest back into their business and people to deliver a good customer experience. To position your restaurant to reap these benefits, you need positioning that relies on strong performance metrics and the ability to demonstrate growth potential.

Why restaurant acquisitions are up

One reason restaurant mergers and acquisitions are on the rise is because businesses of all kinds are seeking economies of scale. From restaurant technology to take-out packaging, operating costs can easily cut into the thin margins that are common in the restaurant industry. Being part of a larger organization increases a brand’s negotiating power. Acquisitions also increase a brand’s geographic footprint and offering. With those capabilities, they can be more agile and adapt to consumer demands.

Plus, as the industry recovers, acquisitions have become an attractive gamble for investors that may want to take advantage of up-and-coming brands. It’s a way to grow quickly without having to open new units. And low interest rates make it easy to acquire funding, making the prospect of acquiring an up-and-coming brand even more appealing.

Good data is key to the due diligence process

Positioning a restaurant for acquisition takes time and begins from the inside out. Internal processes must be analyzed and refined, and you must figure out what you are really selling. That’s why conducting robust restaurant research with solid data is essential for brands seeking to roll up.

Buyers have sophisticated due diligence practices. And you should assume that your peers are providing detailed, data-rich documentation for them to review. The more you can show value with data, the more you will stand out. The quality and consistency of your data matters in the restaurant acquisition process as well. How it’s collected, who is collecting it and how it’s presented can all make a difference in your credibility and ability to tell your story.

If you’re seeking a strategic exit (where the buyer purchases your brand to gain a strategic advantage, not just a financial boost), there’s even more pressure to demonstrate your brand’s value with data. The buyer will want to see that your restaurant can align with their vision and deliver the performance that will help them realize it.

The more you can plan ahead for a restaurant acquisition, the better. Even if you’re not planning to engage buyers this year, it’s a good idea to start collecting the data you need to tell your story now. Not only does it allow you to tell a more complete story to potential buyers, but it also gives you insight so you can focus on the aspects of your business that reliably bring in revenue, ultimately improving your positioning.

Leveraging Benchmarking and Strategic Data Points for Success

During the due diligence process, be prepared to put your brand’s performance in perspective with broader restaurant industry data. If there are any areas where your performance exceeds the rest of the industry, being able to highlight that will set you apart. For example, if your restaurant regularly outperforms competitors during typically slow seasons, you’ll want to call that out. To tell that story, you don’t just need to collect performance data, you need benchmarking.

When you speak to your sales and traffic data, being able to show how it directly compares to your competitors, and the industry as a whole, is a game changer. Twin Peaks, which was one of the big restaurant acquisition stories of 2021, attributes its strong performance to being able to benchmark key metrics and use that data to improve the guest experience.

In addition to benchmarking, it’s also important to focus on the most important data points that will tell the story. A combination of qualitative and quantitative research is necessary to understand the intersection between what your brand stands for and how it intersects with the competition as well as consumers.

Be ready for acquisition with the right metrics

Gathering the metrics needed to tell your story can seem overwhelming, but with Black Box Intelligence solutions, positioning your restaurant for acquisition is much easier:

• Financial Intelligence: Demonstrate your sales and traffic performance and show how you perform in the context of the region, segment, etc.
• Guest Intelligence: Show that people already have a good perception of the brand. That makes the acquisition easier for the buyer since they don’t have to rehab the brand image.
• Workforce Intelligence: If your business has good human resources practices and it’s reflected in lower turnover rates or other attractive metrics, that makes the brand more appealing. Or, if things aren’t going well, you can give the buyer a better idea of what they have to work with.
• Consumer Intelligence: Paint a better picture of who your customers are and where they spend their money. This helps buyers identify if you reach the audiences that they want to engage with.

With automated, rich data, it’s much easier to understand and communicate the value your restaurant offers to buyers. To see how BBI’s products can work for you, Request a Demo.