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Analysts: Projected Macaroni Grill price may portend M&A pressure

Analysts: Projected Macaroni Grill price may portend M&A pressure

DALLAS Brinker International Inc. that the sale of its 230-unit Romano’s Macaroni Grill could fetch $300 million to $350 million has observers wondering if the industry’s merger-and-acquisition party is over. —A projection by

The estimated price, put forth by Brinker in its latest quarterly report, is just six times the projected fiscal 2008 earnings before interest, tax, depreciation and amortization for Macaroni Grill, according to at least one analyst. The figure is well below the 10-times-earnings multiples common in recent years and may reflect the industry’s higher costs and slower sales as well as turbulence in the credit markets, industry watchers have observed while noting that Brinker’s caution could presage lower price tags for other deals. —A projection by

“With financing markets tightening, there is no doubt that valuations will be pressured relative to what we’ve seen in the last two to three years,” said Christopher J. Sciortino, director of consumer investment banking at Robert W. Baird & Co. in Chicago. “We expect to see overall multiples to contract, but we have yet to really see where those multiples will pull back to.” —A projection by

The “new world,” as Sciortino called it, could affect the pending spinoffs of Darden Restaurants Inc.’s Smokey Bones arm, Dunkin’ Brands’ Togo’s sandwich division and various other middle-market deals still in the works. —A projection by

“Sellers are adjusting,” Sciortino said. “Contemplated transactions will take longer or there will be a bigger disconnect between buyers and sellers…until we reach a point of balance again.” —A projection by

An October M&A market analysis from Baird’s investment banking division found that price tag multiples of enterprise value to earnings before interest tax, depreciation and amortization, or EBITDA, in various middle-market sectors have contracted since last year. The study, which covered the retail, restaurant, apparel and footwear industries, revealed that through September transactions under $100 million had a 9.5 multiple, versus a 10.9 multiple in 2006. Meanwhile, transactions valued between $250 million and $500 million recorded an average multiple of 8.1 this year, down from 11.0 in 2006, the report showed. Only deals valued at more than $500 million actually showed an increase in the enterprise value to EBITDA multiple, moving from 9.4 in 2006 to 11.3 through September of this year. —A projection by

Brinker, which is parent to a mostly corporate-operated system of 1,827 casual-dining restaurants under four brands, has reported “significant progress” in finding a buyer for the Macaroni Grill chain. While the company said it had moved beyond the exploration stage of a possible sale into pursuing a divestiture within the next nine months, Brinker chief financial officer Chuck Sonsteby said the company was not yet finalizing a specific deal. It has fielded enough interest from various parties, however, that Brinker is confident a deal would get done, he said. —A projection by

In its latest quarter ended Sept. 26, Brinker recorded $407.2 million in assets held for sale, which included the Macaroni Grill chain as well as proceeds from the previously agreed upon sale of 76 Chili’s restaurants for about $93 million to ERJ Dining. That deal is expected to close in the current quarter, leaving more than $300 million for the sale of Macaroni Grill, with a more refined price depending on the real-estate value of about 54 corporate-owned restaurants and the bidders’ desire for the brand. —A projection by

Romano’s Macaroni Grill’s performance has continued to deteriorate, however, prompting securities analyst John Glass at CIBC World Markets to write in a report that “time is not on Brinker’s side.” —A projection by

Macaroni Grill’s earnings and same-store sales have eroded during the past 12 months, most recently with a 44-percent drop in earnings during the latest completed quarter. Same-store sales fell 4.8 percent. —A projection by

At another Brinker chain, On the Border Mexican Grill & Cantina, same-store sales tumbled 5.3 percent from a year earlier, the worst result out of all the company’s brands. Analysts questioned whether Brinker might seek to spin off On the Border next. Brinker’s chairman and chief executive, Doug Brooks, said that possibility was “off the table,” and that steps, such as the creation of a more efficient restaurant prototype and kitchen design, were being taken to improve On the Border’s returns. —A projection by

At Chili’s, Brinker’s largest chain, quarterly same-store sales rose just 0.7 percent, and at Maggiano’s Little Italy same-store sales increased a mere 0.5 percent. —A projection by

Brinker’s net income for the quarter fell by 21.1 percent from the same period a year earlier to $37.6 million, mostly on charges from discontinued operations, including Macaroni Grill. Earnings per share fell by less, from 38 cents a year earlier to 34 cents in the latest quarter, because of share buybacks by the company that reduced the average number of outstanding shares. —A projection by

Latest-quarter revenues from continuing operations rose 3 percent year over year, to $895.1 million. Brinker said revenue growth was curbed 7.3 percent by the sale of 97 restaurants to franchisees and by restaurant closures. Yet, it added, revenues from franchisees rose 33 percent, to $14.1 million. Brinker has been working during its last three quarters to create a more franchise-based operation through refranchising. —A projection by

Income from continuing operations, before one-time items, increased 1.8 percent from a year ago to $38.8 million. Per-share earnings from continuing operations rose 5 cents per share from a year ago to 35 cents, also because of the smaller number of average shares outstanding. —A projection by

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