This post is part of the On the Margin blog.
In 2012, a Luxembourg-based investment firm known at the time as Joh A. Benckiser acquired Peet’s Coffee & Tea for an acquisition multiple of about 20 times earnings before interest, taxes, depreciation and amortization.
Since then, the firm, now known as JAB Holding Co., has made a long series of acquisitions, generally of companies in the coffee and breakfast space.
JAB Holding has acquired Caribou Coffee, Intelligentsia Coffee & Tea, Einstein Noah Bagel Co., Stumptown Coffee Roasters, Krispy Kreme Doughnuts Inc., Bruegger’s Bagels, Panera Bread Co., and, just for the heck of it, Au Bon Pain. Oh, and amid this spree, it acquired the single-serve coffee company Keurig Green Mountain.
JAB Holding paid remarkably high prices for these companies. In addition to the Peet’s multiple, it paid north of 18 times EBITDA for both Krispy Kreme and Panera Bread. As a result, the firm's presence has driven up prices for limited-service restaurant companies. If you want to acquire a limited-service chain with a good track record, expect to pay a multiple of at least 18. It’s rumored that the investment firm is now interested in Dunkin’ Brands Group Inc., which would fetch exactly that type of multiple.
JAB Holding is able to pay these prices because it has a long-term time horizon. The firm makes investments for the old-money European Reimann family, which is looking for income that can last decades, not years. The firm has its roots in a chemical company founded in Germany in the early 19th century. For more about the family, read this Financial Times story about the Reimanns and their bold business moves.
Michael Phalen, managing director with retail investment banking at Wells Fargo, said at the Restaurant Finance & Development Conference this week that he asked JAB Holding representatives why they would pay a 20 multiple for Peet’s after that deal. “You could have had it for 15,” Phalen said.
“They kind of chastised me,” he said. “You think in terms of multiples; we think in terms of dollars returned to the family over 20 years.”
Rather than buy something the company can flip in a few years, like most private-equity firms, JAB Holding wants to buy businesses that will provide the family with an income for a long time. When companies have a long-term time horizon and seemingly unlimited resources, multiples don’t matter.
The impact has been to drive up the prices on many of these deals. JAB Holding’s high prices, along with the large amount that Burger King owner Restaurant Brands International Inc. paid for Popeyes Louisiana Kitchen earlier this year, have helped drive up prices for large, limited-service chains.
“If people want to buy and consolidate large limited-service restaurant companies, the price is going to be somewhere between 18 and 22 times EBITDA,” Phalen said. “That’s clearly not for the faint of heart.”
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at [email protected]
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