Jack in the Box Inc. is closing in on the sale of the Qdoba Mexican Eats brand to Apollo Global Management LLC for a price tag of more than $300 million, industry sources confirmed to NRN on Monday.
The would-be buyer is the parent company of CEC Entertainment Inc., which owns the Chuck E. Cheese dining and arcade concept. Despite this, there are no potential plans to integrate the two brands, the sources said.
The sources, who wish to remain anonymous due to the confidential nature of the deal, indicate that the sale is not yet final and could still fail to materialize.
Should it go through, the deal may be reported as early as next week.
Last week, Reuters also cited an anonymous source that the deal was in the works.
Both Jack in the Box and Apollo declined to provide comment.
Chris O’Cull, managing director of equity research at Stifel Financial Corp., told NRN that the potential sale is likely more of a reflection of the current industry climate than an indictment on Qdoba’s potential itself.
“The quick-casual segment has become more competitive because of the number of restaurant concepts that have been created the past several years,” said O’Cull, noting that he is not bearish on the Mexican quick casual segment specifically.
“If anything, it’s probably just an oversupply of quick casual right now that has made it difficult for older quick-casual brands to grow.”
He also noted that Jack in the Box may potentially want to focus on just one brand.
San Diego-based Jack in the Box announced that it had hired Morgan Stanley & Co LLC to evaluate alternatives for the Qdoba brand during the company’s second quarter earnings call in May.
Sources indicate that the decision to sell Qdoba came about because the concept didn’t fit in with flagship Jack in the Box’s heavily-franchised business model, as CEO Lenny Comma said was in consideration this spring.
“At our investor meeting last May, we said one of the factors that would cause us to reconsider our strategy with respect to Qdoba was valuation,” Comma said in the second quarter earnings release.
“It has become more apparent since then that the overall valuation of the company is being impacted by having two different business models.”
Qdoba ended that quarter with a 3.2 percent drop in same-store performance, highlighted by a 5.9 percent slide at company-owned locations.
The brand regained positive same-store traction in the third quarter ended Jul 9 with a slight increase of 0.5 percent but saw a 1.1 percent dip in the comp performance of company-owned restaurants.
Jack in the Box is scheduled to report its earnings results for the fourth quarter ended October 1 on Wednesday, Nov. 29 after market close.
Jack in the Box has more than 2,200 restaurants spread across 21 states and Guam. Currently, it fields more than 700 Qdoba restaurants across 47 states, Washington D.C. and Canada.
Contact Dan Orlando at [email protected]
Follow him on Twitter: @DanAMX