Jack in the Box announced Monday that it will acquire Del Taco for $575 million, in a yet another move toward consolidation across the industry.
The deal includes $12.51 per share in cash, plus existing debt. Jack estimates the transaction values Del Taco at a multiple of about 7.6x trailing 12 months adjusted EBITDA. Del Taco shareholders will vote around February or March, and if they approve, the transaction will close sometime in Q1.
Del Taco operates roughly 600 restaurants across 16 states—297 corporate units and 306 franchises—99 percent of which are drive-thru. Under combined ownership, the two brands will have more than 2,800 locations spanning 25 states with similar guest profiles and menu offerings, the companies said.
Jack leadership said there is no plan to create a portfolio of brands, but noted that it will continue to be opportunistic.
“We are thrilled to welcome Del Taco, a beloved brand and proven regional winner, to the Jack in the Box family,” Jack CEO Darin Harris said in a statement. “This is a natural combination of two like-minded, challenger brands with outstanding growth opportunities. Together, Jack in the Box and Del Taco will benefit from a stronger financial model, gaining greater scale to invest in digital and technology capabilities, and unit growth for both brands. This acquisition fits squarely in our strategic pillars and helps us create new opportunities for the franchisees, team members and guests of both brands.”
The two restaurants join a growing list of brands that’ve decided to join forces in recent months. In August, Panera, Caribou Coffee, and Einstein Bros. Bagels united to form Panera Brands, which now plans to go public. Additionally, Burger King parent Restaurant Brands International plans to buy Firehouse Subs for $1 billion, BurgerFi will purchase Anthony’s Coal Fired Pizza & Wings for $161.3 million, and FAT Brands has spent $873 million this year acquiring companies like Round Table Pizza, Marble Slab Creamery, Great American Cookies, Hot Dog on a Stick, Pretzelmaker, and Fazoli’s. And in anticipation of future transactions, Fuzzy’s Taco Shop recently formed Experiential Brands, in hopes of creating a multi-brand platform combining concepts similar to the emerging taco chain.
This is first time Jack will operate another brand since 2017, when it sold 700-unit QDOBA to Apollo Global Management for $305 million. Jack acquired the Mexican fast casual in 2003, when it had 85 locations in 16 states with $65 million in systemwide sales.
Del Taco’s company-run same-store sales increased low-single digits in Q3 compared to 2019, while franchise restaurants lifted in the high-single digits. In September, the chain launched a new loyalty app, Del Yeah! Rewards, in partnership with Cheetah Digital. CEO John Cappasola said in October that the new app performed at a similar level as the old one in the first month and that nearly 40 percent of the loyalty program’s roughly 250,000 users are new members.
Additionally, earlier this year Del Taco launched its Fresh Flex prototype, which includes contactless third-party delivery pickup stations, double drive-thru lanes for mobile orders or delivery driver pickups, and dedicated parking lot areas for curbside customers. The chain is on pace to complete up to 20 corporate remodels this year. With the benefit of the new design, seven franchise development deals were signed to open 53 restaurants by mid-October, including Florida, Raleigh-Durham, North Carolina; Fresno, California, and nontraditional casino units in Las Vegas.
“We are excited to have found a partner in Jack in the Box that shares our vision for the future and has the [quick-service restaurant] expertise to further accelerate Del Taco’s growth,” Cappasola said in a statement. “In recent years, we have uniquely positioned Del Taco as a leader in the growing Mexican [quick-service restaurant] category, expanded our digital capabilities to enhance consumer convenience and focused on growing the brand through franchising, resulting in eight consecutive years of franchise same store sales growth and an accelerating new unit pipeline.”
Similar to Del Taco, Jack unveiled a new loyalty program in August, called the Jack Pack. At the time, Chief Marketing Officer Ryan Ostrom said the company’s customer database grew more than 60 percent over a year and a half. Along with digital innovation, Jack is also projecting significant growth in the coming years. During the chain’s fiscal 2021, it signed 23 franchise agreements for 111 future openings, a new record. The brand also completed 31 site approvals, the most since 2017. Jack has a long-term goal of reaching net unit growth of 4 percent by 2025, and that includes both itself and Del Taco. The burger chain also believes it can surpass 6,000 stores in new and existing markets.
“I couldn’t be happier about the opportunity that this transaction offers to the franchisees of these two amazing brands,” David Behsay, a Jack franchisee and operator of more than 210 restaurants, said in a statement. “I believe the Del Taco brand will fit hand in glove with ours, and further enhance the strong franchise and guest-focused culture we have worked so hard to develop at Jack in the Box. We are excited about the potential to open Del Taco restaurants, helping the company expand these two beloved brands.”
Jack expects the combined company to benefit from run-rate strategic and cost synergies of roughly $15 million by the end of fiscal 2023, with half of the synergies achieved in the first year. These will mostly come through procurement and supply chain savings, technology, and knowledge-sharing initiatives. The burger chain expects the transaction to be mid-single-digit accretive to earnings per share in the first year, excluding transaction expenses, and “meaningfully” accretive in the second year once synergies are realized.
BofA Securities is serving as exclusive financial adviser and Gibson, Dunn & Crutcher LLP is serving as legal advisor to Jack in the Box. Piper Sandler & Co. is serving as exclusive financial advisor and McDermott Will & Emery LLP is serving as legal advisor to Del Taco.
