Late Friday night, Dunkin’ and Inspire Brands struck the largest restaurant deal since 2014, entering into a definitive merger agreement under which Inspire will acquire the coffee giant for $106.50 per share in cash. The transaction is valued at roughly $11.3 billion, including the assumption of Dunkin’ Brands’ debt.
It’s the highest-dollar acquisition since 3G Capital LP, Burger King Worldwide Inc., acquired Tim Hortons for $12.64 billion in August 2014. Panera Bread is next at $7.5 billion, a price paid by JAB Holdings in 2017.
The $106.50 number represents a premium of about 30 percent to Dunkin’s 30-day volume-weighted average price and a premium of 20 percent per share to its closing stock on October 23, before talk of the potential deal surfaced in a Sunday New York Times report. Dunkin’ closed the week trading for $99.71.
“Dunkin’ and Baskin-Robbins are category leaders with more than 70 years of rich heritage, and together they are two of the most iconic restaurant brands in the world,” Paul Brown, co-founder and CEO of Inspire Brands, said in a statement. “By joining Inspire, these brands will add complementary guest experiences and occasions to our current portfolio.”
Ahead of the blockbuster, Roark Capital-backed Inspire’s ascending portfolio included more than 11,000 restaurants across Arby’s, Buffalo Wild Wings, Sonic Drive-In, and Jimmy John’s. with $15 billion in annual systemwide sales. The Dunkin’ acquisition balloons those figures. Today, there are more than 12,500 Dunkin’ and nearly 8,000 Baskin-Robbins globally.
At close, Inspire will direct 31,600-plus restaurants in 60-plus countries, with $26 billion in annual systemwide sales. It will also employ 600,000 company and franchise team members, 3,200 franchisees, and more than 25 million loyalty members
Inspire said Dunkin’ and Baskin-Robbins will be operated as distinct brands within the company’s portfolio, which is how its run other chains in the past.
This deal will give it five of the country’s 18 largest quick-service brands. Dunkin’ entered 2019 with 9,630 domestic units; Arby’s had 3,359; Sonic Drive-In 3,526, Jimmy John’s 2,787; and Baskin-Robbins 2,524. Buffalo Wild Wings closed last year with 1,215 restaurants—good for sixth overall on the full-service side.
It will also place four of top 23 grossing counter-service brands under one umbrella (Baskin-Robbins was 48th). By total systemwide domestic sales in millions as of year-end 2019: Dunkin ($9,220); Sonic ($4,687); Arby’s ($3,885), Jimmy John’s ($2,105); and Baskin-Robbins ($626).
Buffalo Wild Wings ranked No. 3 among sit-down chains at $3.7 billion.
Inspire said Friday adding Dunkin and Baskin-Robbins’ vast footprint would strengthen the company “through their scaled international platform and robust consumer packaged goods licensing infrastructure, as well as add more than 15 million loyalty members.” Dunkin’ is 100 percent franchised and boasts more than 20,000 points of distribution in more than 60 countries worldwide.
“[Friday’s] announcement is a testament to our world-class group of franchisees, licensees, employees, and suppliers who have worked together to transform Dunkin’ and Baskin-Robbins into modern, relevant brands,” Dunkin’ CEO Dave Hoffmann said in a statement. “This team’s grit and determination has enabled us to deliver outsized performance and made our brands among the most elite in the quick-service industry.”
The closing of the tender offer will be subject to certain conditions, including the tender of shares representing at least a majority of the total number of Dunkin’ Brands’ outstanding shares, the expiration or termination of the antitrust waiting period, and other customary conditions.
It’s expected to close by year’s end.
Following the successful completion of the tender officer, Inspire would acquire all remaining shares not tendered through a second-step merger at the same price.
Barclays is serving as financial adviser to Inspire and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as its legal counsel. BofA Securities, Inc. is serving as exclusive financial adviser to Dunkin’ Brands and Ropes & Gray LLP is serving as its legal counsel.
Dunkin’ returned to positive sales growth in Q3, announced Thursday. The brand’s U.S. same-store sales climbed 0.9 percent after improving sequentially each month. July was down low-single digits before inching into positive territory in August and accelerating through September. In the week ended October 24, comps were gaining low-single digits, year-over-year.
Baskin-Robbins’ U.S. same-store sales grew 6.5 percent in the period.
Dunkin’ has closed 687 domestic locations year-to-date, including 447 Speedway self-service kiosks. In Q3, it broke out as a net closure of 466 U.S. venues, with 425 Speedways.
Dunkin’ guided earlier in the year it expected to shutter about 800 U.S. locations permanently on a gross basis as part of a “real-estate portfolio rationalization,” with the goal of “setting the U.S. system up for continued strong, profitable future growth.” If it ends up at 800, it would account for roughly 8 percent of Dunkin’s U.S. total restaurant footprint, but just 2 percent of the brand’s 2019 domestic systemwide sales.
“I am particularly proud of our actions since March of this year. During the global pandemic, we have stood tall. We’ve had each other’s backs and are now stronger than ever,” added Hoffmann, who joined the chain in July 2018 after 22 years with McDonald’s and two at Dunkin’. “We are excited to bring meaningful value to shareholders who have been with us on this journey and believe that Inspire Brands, a preeminent operator of franchised restaurant concepts, will continue to drive growth for our franchisees while remaining true to all that is unique and special about the Dunkin’ and Baskin-Robbins brands.”
Brown’s earlier comment about adding complementary guest experiences and occasions is heart to Inspire’s model.
When the company started, Brown said it would follow some time-tested hotel strategies. The ex-Hilton Worldwide leader previously told QSR Inspire planned to mirror the sector’s framework of driving concept value from within a multi-branded portfolio, or independent identities that pull from a center of excellence.
Inspire Brands touts a focused, integrated model, with each brand relying on the resources of the other. Leveraging collective strengths like HR, finance, legal, IT, development, communications, customer personalization and insight, and media. It’s akin to how hotel organizations spread out like a web from a base of power.
Brown once told The Wall Street Journal Inspire Brands wanted to create a restaurant company “with a broad portfolio of distinct brands across a full spectrum of restaurant occasions.” One that capitalizes on the benefits of scale not just to save cost, but also to enable outside investments in long-term growth initiatives.
So you now have a coffee, snacking, morning leader in Dunkin’. It completes a journey that could look like this: Arby’s/Jimmy John’s for lunch, Buffalo Wild Wings for dinner, and Sonic Drive-In for a night-cap. They all operate in distinct sectors, yet are run independently by Inspire. The collaboration takes place behind the scenes from a resources standpoint.
BTIG analyst Peter Saleh said earlier in the week the deal valued “the company at more than 25x trailing EBITDA and representing the highest acquisition multiple of a franchise operator in recent history.”
It's well above historical industry averages of 11x and even the mid-to-upper teens multiples that best-in-class operators have been able to achieve, he said. For instance, Sonic’s $2.3 billion deal was for 15.8x trailing EBITDA. Popeyes’ $1.8 billion 2017 sale to Restaurant Brands International clocked in at 19.6x. JAB’s $7.5 billion acquisition of Panera Bread was 17.8x.
“The acquisition of Dunkin' Brands at this suggested price would be a 10x premium to that of Sonic, and would represent the highest multiple paid for a franchised business of scale in the past 10–15 years, if not longer,” Saleh said.
He predicted Inspire Brands would focus Dunkin’s growth west of the Mississippi—something the brand was already plotting pre-COVID-19, especially in California. It’s previously suggested long-term potential of more than 17,000 U.S. units.