At this time last year the restaurant industry was experiencing a deluge of deal making. Today, it’s lucky to have a sparse sprinkling. But that change in fortunes has not dampened the hopes of several companies that recently announced they would “review strategic options.”
That’s code, of course, for hanging up the “for sale” sign. But given the slowed economy, turbulent debt markets and consumers who are eating out less, the timing of putting a foodservice company on the block seems like it couldn’t be worse. Those in the know, however, say that’s not necessarily so.
While some such “reviews” point to both the desperation of the times and the companies exploring their options, others reflect the unyielding optimism of those ready to pocket the return on their investments, observers say. Some companies could even exceed their expectations, they add.
Below is a snapshot of some pending reviews, as well as solicited judgments on the outcomes from select banking experts.
Buca Inc. : Late last year Minneapolis-based Buca hired investment bank Piper Jaffray & Co. to explore options to increase shareholder value, including raising capital or undertaking either a recapitalization, sale or merger with another company. Two restaurant industry bankers that requested anonymity because they didn’t want to alienate potential clients said the most likely scenario for Buca is bankruptcy. If the operator of about 90 Buca di Beppo  Italian-style dinnerhouses files for Chapter 11 reorganization and shuts down the underper-forming restaurants, a buyer may materialize, they both contended.
Buca placed no timeframe on its strategic review. In early February, the company received a delisting notification from the Nasdaq stock market and was given until early August to regain compliance. The delisting notice rested on the company’s stock price, which has closed below the exchange’s required $1 per share price for 30 consecutive days.
Verdict: Desperate times, desperate measures.
Dave & Buster’s  Inc.: On Feb. 19, Dave & Buster’s confirmed the expected—the company hired Jefferies & Co. Inc. to pursue a sale of the brand, which currently is owned by Wellspring Capital Management LLC. Dave & Buster’s, the 49-unit dining and entertainment chain, was acquired by Wellspring, a New York-based private equity firm, in early 2006 for about $375 million, which at the time sources said was about six times Dave & Buster’s EBITDA. Reports say Wellspring could be seeking a $600 million sale, which if Dave & Buster’s posts the expected adjusted EBITDA of $85 million for its full year ended Feb. 3, would represent about 7 times. As one banker said, “They will make money.”
For the 39 weeks ended Nov. 4, the latest available data, Dave & Buster’s revenue rose 6.7 percent to $390.8 million. Same-store sales increased 4 percent. The company more than doubled its net loss, however, to $11.3 million. Adjusted earnings rose about 23 percent to $53.7 million. The company reported long-term debt of $254.6 million as of Nov. 4, and just announced a payment of $10 million toward its senior credit facility.
Verdict: Sale may go as planned.
Sizzler: A sale of this 300-unit chain is expected within six months. The owner of the limited-service grill operator and franchisor, Pacific Equity Partners, purchased Sizzler’s former parent company, Worldwide Restaurant Concepts Inc., in 2005 for about $208 million. Now they have hired Houlihan Lokey to find a buyer for Sizzler, which operates or franchises restaurants in 17 states, as well as Puerto Rico, Australia, where Pacific Equity is headquartered, Japan, Korea, Taiwan and China.
Since taking over in 2005, Pacific Equity has upgraded most Sizzler locations and reinvigorated franchising, especially abroad. While Sizzler maintains its well-known salad bars and counter-ordering system, the look and feel of the units are more casual dining in nature, and a Las Vegas franchisee will soon test a full-bar, full-service format.
Bankers said that while the U.S. business of Sizzler may be stellar at best, this deal is about the positive growth prospects of international franchising.
Verdict: Sale may go better than planned.
Tully’s Coffee  Co.: After postponing and then finally cancelling an initial public offering, which it had hoped would net about $35 million, Tully’s last month hired investment bank D.A. Davidson & Co. to review its options, including a possible sale of the 142-unit chain.
Tully’s has posted operating losses and growing EBITDA losses in the past three fiscal years, and according to its filings with federal regulators, the company only made money in one year since its inception—and that was because of the sale of assets. Filings also show the chain has had trouble expanding outside of its home market in Washington state. A banker said Tully’s may come up with a buyer, but when asked for how much, he said, “less than whatever you’re thinking.”
Verdict: Desperate times, desperate measures.