Ignite to Buy Romano's Macaroni - Analyst Blog
February 07 2013 - 1:21PM
Zacks
Ignite Restaurant Group (IRG) recently inked an
agreement with private equity firm Golden Gate Capital to buy the
latter’s Italian restaurant chain Romano’s Macaroni Grill for $55.0
million. This all-cash deal will be financed through a $50 million
upsizing of the company’s existing credit facility.
The acquisition is expected to be completed late in the second
quarter of 2013 and Ignite management expects the deal to be
accretive to earnings in 2014.
Why Romano’s Macaroni Grill?
First opened in 1988, Romano’s Macaroni Grill offers authentic
Italian delicacies. The restaurant’s open kitchen, brick ovens,
opera singers and the honor system house wine combine to create a
rich dining experience. Apart from its restaurants, the brand
also extends a packaged food line featuring the dishes available at
the restaurant. Also, the brand offers other services like catering
and online ordering.
The chain currently owns and operates 186 units and has 5
franchises across 36 states. Additionally, the brand franchises an
additional 19 units throughout nine U.S. territories and foreign
countries.
Earlier, this chain was owned by Brinker International
Inc. (EAT). On Dec 18, 2008, Brinker sold its majority
stake in the chain to Golden Gate Capital. In 2012, Romano’s
Macaroni Grill generated approximately $385.0 million in
revenues.
According to Ignite, Romano’s Macaroni Grill operating model is
similar to Ignite’s existing brands. Further, strong brand
recognition, sound business model and solid revenues make Romano’s
Macaroni Grill a lucrative acquisition target.
Significant Synergy to be Derived
Ignite Restaurant currently owns and operates 129 Joe's Crab Shacks
and 15 Brick House Tavern + Tap. Post-acquisition, Ignite will
boast three casual dining brands.
Ignite expects to derive significant synergy off this deal and
remains optimistic of owning three high quality casual dining
brands and generating nearly one billion in revenues in the near
term.
On the other hand, Romano’s Macaroni Grill should benefit from this
combination as its new owner Ignite has experience of improving
operating performance of an acquired brand. For example, Ignite has
historically enhanced operating performance at Joe’s Crab
Shack.
We also believe that this deal is strategically positive. We expect
Romano’s Macaroni Grill to be well- managed by its new owner.
Merger & Acquisition: An Industry Trend
Merger and acquisition activity is gaining momentum in the
restaurant sector. The companies are looking at potential business
partners to foray into different zones and unlock value.
Some latest acquisition deals that are worth mentioning include the
buyout of Caribou Coffee Company by JAB Group and Bob Evans
Farms Inc.’s (BOBE) divestiture of Mimi’s Café concept to
LeDuff America Inc. Yet another company, Frisch's
Restaurants Inc. (FRS) also sold its Golden Corral
operations last year.
BOB EVANS FARMS (BOBE): Free Stock Analysis Report
BRINKER INTL (EAT): Free Stock Analysis Report
FRISCHS RESTAUR (FRS): Free Stock Analysis Report
IGNITE RESTRNT (IRG): Free Stock Analysis Report
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