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What does the Inspire-Dunkin' deal portend for mergers and acquisitions in general?

Inspire Brands-Dunkin’ Brands deal clears COVID-19 clouds

After a muffled M&A period, the proposed $11.3 billion acquisition may get others in the restaurant industry buzzing

The COVID-19 pandemic had cast a pall over the big, proactive mergers and acquisitions in the restaurant business over the past eight months, but Inspire Brand’s proposed $11.3 billion acquisition of Dunkin’ Brands Inc., announced Friday, cleared away some coronavirus clouds.

The pandemic had seen some merger and acquisition moves around the edges, opportunistic purchases as restaurant brands struggled through the unprecedented period.

But grand gestures had been missing.

The last big deal was consummated just a week after the COVID-19 pandemic was declared when Yum Brands Inc., parent to the Taco Bell, KFC and Pizza Hut brands on March 18, completed its $375 million acquisition of The Habit Restaurants Inc., bringing the 270-unit better-burger brand into its portfolio of about 49,000 restaurants in more than 145 countries.

Then a relative hush fell over the M&A world.

The Inspire-Dunkin’ deal was an eardrum-shaking boom.

Big deals like the Dunkin’ acquisition get other potential buyers thinking about what they might acquire, said John Gordon, principal at Pacific Management Consulting Group, in an interview.

However, Gordon said potential acquisitions will likely be segment-sensitive as many brands, especially those that rely on in-store sales such as casual-dining, navigate coronavirus cautions and restrictions.

“M&A will be confined to the QSR sector because that’s where bankers and other lenders see some strength,” Gordon said.

The Inspire-Dunkin’ deal fits firmly in that wheelhouse. Inspire, which already owns Arby’s, Buffalo Wild Wings, Jimmy John’s, Rusty Taco and Sonic Drive-Ins, and it now will have Dunkin’ Donuts and Baskin-Robbins in its portfolio.

Other observers said the time is right for large, so-called-platform companies that can leverage costs.

Andy Barish, an analyst with Jefferies, said in a note over the weekend that “’platform’ portfolio companies that operate multiple brands are becoming increasingly relevant as size, scale and technology matter more than ever for restaurants.”

Barish noted that portfolio companies can pool individual brands' functions and more effectively deploy staff for such services as marketing and human resources.

And, in the COVID-19 Age, uses of technology to reach consumers and provide them multiple channels to use the restaurant brand are important.

“Industry-leading consumer-facing and back-end technology will have distinct competitive advantages,” Barish said.

“From this perspective, we suspect there could be further strategic activity in the restaurant industry,” he noted.

Investment money has been gathering on the sidelines.

A number of special purpose acquisition companies, or SPACs, have declared their intent to raise public money, to be exercised within two years, to acquire some brands in the restaurant space.

FAST Acquisition Corp. has raised $200 million target and listed on the New York Stock Exchange, and the co-CEOs say they are looking to acquire a brand in the quick-service space.

“We’re looking for quick-serve, fast-food, small-dining-room brands that we can take from good to great — so brands that have actually done OK during COVID,” said Doug Jacob, co-founder of &Pizza and co-CEO of the new blank-check SPAC with Sandy Beall, the founder of the Ruby Tuesday brand, in August.

Activist investor Starboard Value LP, known for its current activist position in Papa John’s International Inc. and former board takeover at Darden Restaurants Inc., in September upsized its new affiliated blank-check company to $360 million from an earlier target of $300 million.

Smaller M&A deals will continue to scallop the edge the industry, analysts said, as it has seen in the past several months:

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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