Zoes Kitchen postponed its second-quarter earnings Thursday afternoon to drop a fast-casual bomb early Friday. The 261-unit Mediterranean brand announced August 17 it has entered into a definitive agreement to be acquired by Cava Group, Inc., the company behind one of the country’s fastest-growing chains. The combined companies will now have 327 restaurants in 24 states, and form a powerful duo in the booming Mediterranean fast-casual industry.
Under the terms of the agreement, Zoes’ shareholders will receive $12.75 in cash for each share of common stock, representing a premium of about 33 percent to the chain’s closing share price on August 16, and a premium of about 33 percent to its 30-day volume weighted average price. In total, the acquisition carries an enterprise value of about $300 million.
Also to note, the purchase will be financed through a significant equity investment in Cava led by Act III Holdings, the investment vehicle create by Ron Shaich, founder, chairman, and former CEO of Panera Bread, and take Zoes private. After closing, Shaich will serve as chairman of the combined company. Brett Schulman, current CEO of Cava, will take over the same role to “work closely with the existing leadership teams at Zoes Kitchen and Cava to oversee their growth and evolution.”
“I am proud of the significant work the team has executed over recent years to grow the Zoes Kitchen footprint, build brand affinity and secure a leadership position in the Mediterranean and better-for-you category,” Kevin Miles, Zoes Kitchen’s CEO, said in a statement. “These efforts made it an attractive candidate for a transaction of this kind. I’d like to thank each and every team member who will continue to make Zoes a differentiated dining experience every day.”
“As a close observer of the fast-casual restaurant industry, I am thrilled at the prospect of what Cava and Zoes Kitchen can accomplish together,” Shaich added in a statement. “Together these businesses will create the leading company in one of the most important categories in fast casual today—Mediterranean—with the capabilities to drive extraordinary customer satisfaction and powerful growth.”
Cava, which also sells chef-crafted dips and spreads in more than 250 Whole Foods Markets around the country, expects to have 75 locations by the end of 2018.
Founded in 1995, Zoes grew to 261 units in 20 states but has struggled to generate sales in recent quarters. The brand reported Q1 same-store sales declines of 2.3 percent, driven by a 4.4 percent decrease in transactions and product mix, year-over-year. The brand said at the time it planned to slow unit growth in 2019 and close some underperforming and older restaurants. Sunil Doshi, Zoes’ CFO, said the chain had identified five to 10 locations “where we may choose, if it makes economic sense, to close at or prior to lease expiration.”
Schulman said the two brands combined would allow the company to “to broaden our geographic footprint and meet the needs of even more guests—whether in Bethesda or Birmingham, Plano or Pasadena—who crave delicious, healthy food without compromise.”
“Together, these two brands are united by a shared heritage and passion for exceptional Mediterranean cuisine,” he said. “… As part of the Cava family, Zoes Kitchen will benefit from Cava’s track record of bold culinary innovation and leveraging data and technology to drive growth and convenience.”
Under the terms of the merger agreement, Zoes is permitted to actively solicit, for a 35-day period, alternative acquisition proposals from potential buyer and business combination candidates. It would be required to pay Cava and $8.5 million termination fee if the merger agreement is terminated.
