Olive Garden parent Darden Restaurants Inc.’s proposed purchase of the 154-unit Ruth's Hospitality Group Inc. will more than double the casual-dining portfolio company’s fine-dining presence and add a stable of franchisee operators to the company.
In the agreement announced Wednesday, Orlando, Fla.-based Darden, which also owns the casual-dining LongHorn Steakhouse and Cheddar’s Scratch Kitchen brands among others, offered $21.50 a share for Ruth’s shares in a deal valued at about $715 million. The all-cash deal for the Winter Park, Fla.-based steakhouse brand is expected to close in June.
As of Feb. 26, Darden had 1,890 restaurants, including 61 fine-dining Capital Grilles and 29 fine-dining Eddie V’s. Ruth's Chris has 154 locations, including 80 company-owned or -operated restaurants and 74 franchised locations.
“When you look at the fine-dining segment,” said Rick Cardenas, Darden CEO, in a call Thursday, “sales have outperformed relative to pre-COVID and that is expected to continue.
“Additionally,” he said, “as we have seen in our fine-dining brands, consumers with income levels above $150,000 continue to dine out and they expect to maintain or increase their spending at casual- or fine-dining restaurants.”
Cardenas said the 154-unit Ruth’s Chris had attractive restaurant-level economics. In the 2022 fiscal year, the brand had $860 million in systemwide sales and posted average company-owned restaurant volumes of $6.2 million. Average check was $97, Cardenas said, and restaurant-level margins on earnings before interest, taxes, depreciation and amortization was 19%.
Darden’s last acquisition was in 2017 for Cheddar’s Scratch Kitchen, an affordable casual-dining brand, which it bought from private-equity groups L Catterton and Oak Investment Partners for $780 million in an all-cash deal.
Darden added Eddie V’s Prime Seafood in 2011 and The Capital Grille in the Rare Hospitality-LongHorn Steakhouse acquisition in 2007.
“When we consider adding a brand to our portfolio, we have set criteria,” Cardenas said. “The brand should be a full-service dining concept with strong guest appeal, have the ability to exceed the sales growth in our long-term framework and make an impact to our financial performance over time. Ruth’s Chris checks all these boxes.”
Cardenas added that Ruth’s Chris had additional runway for growth and was big enough “to make a meaningful impact to Darden’s performance over time.”
Cheryl Henry, Ruth Hospitality’s CEO, president and chair, will remain with the concept and report directly to Cardenas, he said.
Cardenas and Henry said the companies have similar cultures and operating philosophies.
“We have delivered on our founder’s vision through our commitment to hospitality and drive to succeed,” Henry said Thursday. “This acquisition is the right next step in our journey that began when Ruth Fertel founded this brand in 1965.
“Throughout my interactions with Rick, Raj [Vennam, Darden’s chief financial officer] and the Darden team,” Henry said, “it has become evident that we have a shared vision of how we run our restaurants and lead our teams. We are aligned on our operating philosophies and have a strong cultural fit.”
Cardenas, who became Darden CEO in May 2022, said “Ruth’s Chris also complements our portfolio with the differentiated brand that allows us to capture a wide range of fine-dining guest occasions that we are not competing for today.”
Vennam said the offered price is about 9.4 times the Ruth Hospitality’s 2022 adjusted EBITDA.
“We're really committed to maintaining our investment-grade credit profile,” Vennam said Thursday, “and we have sufficient liquidity and debt capacity to complete the all-cash transaction, which has no financing contingency.”
Vennam added that scale advantages would produce run-rate synergies of $15 million to $20 million by the end of fiscal 2025, primarily through supply-chain and administrative-expense savings.
Cardenas said the Ruth’s Chris franchisees are strong operators. “Right now, there are no plans to acquire those locations at this time,” he said. “We expect to continue to be largely company-owned going forward.”
Darden’s brands also include Yard House, Seasons 52, Bahama Breeze and The Capital Burger.
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