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Duffy's to buy Roadhouse Grill for $29M

PALM BEACH GARDENS Fla. Duffy's Holdings Inc., operator of 15 Duffy's Sports Grill casual-dining restaurant and sports bars, based here, has agreed to acquire Roadhouse Grill Inc., the parent to 73 namesake dinnerhouses, in a going-private deal valued at $29 million, the company said Monday.

Duffy's also said it intends to invest $11 million in cash into the Roadhouse brand, a chain that emerged from bankruptcy in 2002, but since then has been unable to garner positive momentum in either sales or profit. Pompano Beach, Fla.-based Roadhouse Grill operates 57 locations and is franchisor of an additional 16 abroad, including in Malaysia, where majority owner Berjaya Group is based. Duffy's will assume about $10.1 million in debt from Roadhouse Grill. The deal is expected to close by May 31, and has been approved by the board of directors at Roadhouse Grill, a public company that trades on the Pink Sheets.

The transaction will be financed with operating cash from the Duffy's chain, which in 2006 recorded total sales of $39.5 million, and from the brand owners, Paul Emmett, president and chief executive officer, and Carlos Morrison, an investor. Prior to his 2001 investment in Duffy's that garnered him a 50-percent stake in the business, Emmett worked for managed services provider Restaurant Associates for 27 years, and at one point managing its 30-unit chain of Charlie Brown steakhouses.

Most of the Roadhouse Grill units, including about 30 locations in Florida, will be converted to the Duffy's brand, according to Emmett. Certain Roadhouse Grill restaurants "that work," including about 5 locations in upstate New York, for example, will remain Roadhouse Grills, he added.

"The stores that have had it, we'll convert," Emmett said in an interview. "But some stores are still well received. We're chomping on the bit to get in there and reenergize the brand, or to take advantage of the great real estate Roadhouse has, especially in Florida."

Roadhouse Grill's president and chief executive officer, Ayman Sabi, said the acquisition will provide a "great synergistic blend" that allows Duffy's to quickly expand its brand and to also tap into the trained managers working within the Roadhouse chain.

"We had had a difficult time over the last couple of years," he said. "But our real estate holdings and old leases made us attractive É plus, what was appealing to [Duffy's], is our pool of trained managers. It is difficult to spend the time and money to find and train new managers, and [Duffy's] will now have a built-in pool."

Ayman said Roadhouse Grill was pursued during the past two years by both private-equity firms and other restaurant companies and eventually decided upon an acquisition with another operator.

"Private-equity firms can be more aggressive with pricing," he said. "But restaurant operators have better synergies."

In the deal, Duffy's will acquire about 85.5 percent of the Roadhouse Grill common stock, which is held by insiders, for $1 million in cash and a $7 million note. Ayman is the second largest shareholder, and while he said he will stay with the newly formed company during a transitional period, he also said was looking forward to "quasi retiring."

Duffy's will acquire the remaining 14.5 percent of stock from public shareholders for a total of $1.9 million in cash, or 46 cents per share. The per-share price for the public shareholders is a significant premium over the company's recent trading price of about 7 cents per share.

Roadhouse Grill has a market capitalization of about $2.2 million. The company had not filed up-to-date regulatory filings for a year, as its public accounting firm and its chief financial officer both resigned last year. In addition, the company had signed an agreement in late 2005 to be acquired by Steakhouse Partners Inc. That deal was terminated in March 2006 because the necessary funding was not confirmed. The buyout was valued at about $25.3 million.

According to Roadhouse Grill's latest available regulatory filings, for the nine months ended Jan. 22, 2006, the company posted a loss of $9 million, compared with a loss of $415,000 in the year-earlier period when the company was able to book a $7.1 million gain on debt extinguishment.

Total revenues for the nine months ended in January 2006 dropped 4.7 percent from the year earlier period to $83.4 million.

At Duffy's, the company's fiscal 2006 revenue total of $39.5 million was a 21.5-percent jump from the year earlier. The company opened two restaurants in the second half of both 2005 and of 2006. Duffy's earnings before interest, tax, depreciation and amortization, or EBITDA, more than doubled in 2006 to $1.7 million.

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