Why Roark Capital Is Paying a Premium to Turn Buffalo Wild Wings Around
Buffalo Wild Wings (NASDAQ: BWLD) hopes that life will be a little less wild going forward, after a protracted tussle with Marcato Capital Management ended with the announcement this week that "B-Dubs" is being acquired by Arby's Restaurant Group for $157 per share. Arby's, the quick-service sandwich chain, is majority-owned by private equity firm Roark Capital Group, which will pay $2.9 billion for Buffalo Wild Wings, including net debt.
Shares gained 6.3% on Tuesday after the deal was announced, and they now sit a couple of points below the deal offer, trading at 31 times forward earnings. The deal price represents a premium of 63% over the multi-year low B-Dubs' stock set just 12 weeks ago when it closed at $96.45 on Sept. 7. While the transaction price is no bargain, Arby's should still be able to generate a decent return on investment in the coming years.
A quick service restaurant (QSR) chain like Arby's acquiring a higher-end, fast-casual restaurant for turnaround purposes isn't typical, but in this case, the combination makes much sense. Several fast-casual chains have experienced crimped sales recently from a number of factors, including a rising "eat at home" trend due to increased grocery home delivery, and millennials' interest in cooking healthy food. Additionally, QSR chains have regained market share over the last two years, led by invigorated competitors like McDonald's Corporation (NYSE: MCD), and The Wendys Co (NASDAQ: WEN). Incidentally, by virtue of a minority stake of 18.75% in Arby's, Wendy's will soon also be an owner of Buffalo Wild Wings.
Source: Fool.com
