On the Margin
Will Fidelity acquire Del Frisco’s?

Will Fidelity acquire Del Frisco’s?

This post is part of the On the Margin blog.

Nearly a year ago, Fidelity National Financial Inc. disclosed an 8.1-percent stake in the upscale steakhouse operator Del Frisco’s Restaurant Group Inc. Since then, Fidelity has increased its stake to 13 percent.

As a result, observers have speculated that Fidelity would one day take the Southlake, Texas-based company private.

Those rumors are unlikely to go away after Del Frisco’s named Norman Abdallah CEO on Monday.

Del Frisco’s has long been tabbed as a potential take-private candidate. The company has no debt and an enterprise value multiple of 8 times cash flow. It also has some levers a buyer could pull, such as the sale of Sullivan’s Steakhouse.

More to the point, the company is just unlikely to get much in the way of appreciation on Wall Street. Outside of Ruth’s Hospitality Group Inc., relatively few upscale concepts last long on the public markets before ultimately being taken private.

And outside of a glorious three months in 2014, when the company was trading at above $25 a share, Del Frisco’s stock hasn’t done much since its IPO in 2012. A take-private deal has seemed possible for some time.

Abdallah has been a director at Del Frisco’s since 2011, but he also has a long track record of operating restaurants for private-equity investors. Consider:

·His most recent job was as an operating partner for CIC Partners, where he was an investor and operator for the private-equity firm’s restaurant companies.

·In 2014, he was interim CEO of Dinosaur BBQ and helped establish a restaurant investing platform for a family office, leading to the acquisition of Jim ‘N Nicks BBQ.

·He was the CEO of Romano's Macaroni Grill starting in 2010, after Golden Gate Capital acquired the company. Macaroni Grill was later sold to Ignite Restaurant Group Inc.

·Abdallah worked with Restaurants Unlimited, a 14-concept company that was owned by Sun Capital.

​To be sure, none of this disqualifies Abdallah from operating a publicly traded company. But he is clearly experienced in operating companies for private investors, who have different demands than public investors.

The rumored buyer, Fidelity, is a publicly traded company, but it acts in many ways like a hedge fund when it comes to the restaurant industry. And it is no stranger to the business. Fidelity’s chairman, Bill Foley, is a dealmaker who spent seven years as CEO of CKE Restaurants Holdings Inc., and who still likes the industry.

Fidelity acquired several concepts from 2009 through 2012, and still operates some of them through American Blue Ribbon Holdings (although it spun off J. Alexander’s last year).

“We believe this news increases the potential that the company could pursue a sale,” Raymond James analyst Brian Vaccaro wrote in a note on Monday. Vaccaro said that a fair value of Del Frisco’s would be $18.60 per share, or more than $2 more per share than its closing price Monday.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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