Newly formed Inspire Brands struck another blockbuster restaurant deal, announcing Tuesday it entered into a definitive merger agreement to acquire Sonic Corp. for $2.3 billion. The deal is for $43.50 per share in cash, including the assumption of Sonic’s net debt.
“Sonic is a highly differentiated brand and is an ideal fit for the Inspire family,” said Paul Brown, chief executive officer of Inspire Brands, in a statement. “We have tremendous respect for Sonic’s exceptional team of employees and franchise owners, who have built one of the industry’s most distinctive restaurant brands.”
“We’re excited to build on Sonic’s momentum as we leverage our combined expertise and capabilities to better serve guests, further support team members and franchisees and drive long-term growth,” he added.
The agreement, which was previously approved by Sonic’s board of directors, represents a premium of about 19 percent per share to Sonic’s closing stock price on September 24, and a premium of about 21 percent to its 30-day volume-weighted average price.
When the transaction closes later this year, Inspire Brands said Sonic will operate as a separate business unit within Inspire and will be based in Oklahoma City. Inspire Brands intends to keep Sonic's management team in place, it said.
Inspire Brands was formed February following the closing of Arby’s Restaurant Group’s $2.9 billion purchase of 1,200-plus unit full-service chain Buffalo Wild Wings. The company is majority-owned by affiliates of Roark. Inspire Brands' current portfolio includes more than 4,700 Arby’s, Buffalo Wild Wings, and fast-casual Rusty Taco locations. Following the completion of the transaction, Sonic will be a privately held subsidiary of Inspire and will continue to be operated as an independent brand. The company's portfolio will then include more than 8,000 company-owned and franchised restaurants with combined system sales of more than $12 billion.
Brown said following the BWW deal that Inspire Brands envisioned buying no more than 10 chains, with systemwide sales between $1 billion and $4.5 billion each. He also said the company would look at adding a mix of franchise-owned and company-owned chains. Inspire Brands made good on that prediction with the purchase of Sonic and its 3,600-plus-unit footprint.
“This value-maximizing transaction validates the actions we have taken over the last year to grow traffic and improve sales while delivering differentiated offerings and superior guest service,” said Cliff Hudson, Sonic Corp. CEO, in a statement. “Our Board of Directors, taking into account the views of shareholders, conducted a comprehensive review of a wide range of strategic options to maximize shareholder value. This transaction delivers significant, immediate and certain value to Sonic shareholders, and the private ownership structure will provide important benefits to our guests, franchisees and employees.”
“As one of the largest owner-operators of company-owned and franchised restaurant brands, Inspire appreciates the unique culture of collaboration between Sonic and our franchisees,” he added. “Sonic franchisees are engaged in planning regarding technology, new products and marketing programs, and the team at Inspire recognizes the central role our franchisees have played, and will continue to play, in Sonic’s success. We look forward to working closely with Inspire as we continue to provide made-to-order American classics, distinctive flavors and the most personalized guest experience in our industry.”
On September 11, Sonic released preliminary results for its fourth fiscal quarter. The company estimated that system-wide same-store sales for its fourth fiscal quarter increased about 2.6 percent as compared to the prior-year quarter. Estimated same-store sales performance for the quarter reflected an increase of about 2.5 percent at company drive-ins and an increase of approximately 2.6 percent at franchise drive-ins.
In the third quarter, Sonic's same-store sales dipped 0.2 percent across its system (it was the same at franchise and company units). Five new stores opened in the quarter and Sonic posted revenue of $118.3 million in the quarter, and net income per diluted share of 58 cents, a 32 percent lift from the prior-year mark of 44 cents. Adjusted net income per diluted share upped 21 percent to 52 cents versus 43 cents.
Inspire Brands said Sonic was an ideal fit because it has a "significant focus on innovation, especially in guest-facing digital technologies. In addition, its menu—especially its beverage innovation—is truly unique. Each of these areas are great growth opportunities for Inspire’s current brands."
"Inspire is making long-term investments across its brands in areas like data and analytics, loyalty, and customer personalization, all of which will help create a competitive advantage for each of our businesses and which Sonic will benefit from," the company said.