What does operating a leading wine-and-spirits business have to do with running a doughnut shop or an ice cream parlor? Not a gosh-darned thing, which is why France's Pernod Ricard is selling the Dunkin' Brands business it acquired through its buyout of Allied Domecq earlier this year.
Pernod is going to reap about $2.4 billion in cash for selling this collection of assets to a consortium of private equity groups made up of Bain, Carlyle Group, and Thomas Lee Partners. The equity investors, in turn, are going to get Dunkin' Donuts' 6,000 stores, Baskin-Robbins' 5,400 outlets, and the 400-store Togo sandwich chain.
All things considered, business seems to be going pretty well at Dunkin' Brands. Revenue was up 28% in the first half of the year (as reported by Allied Domecq), with same-store sales at Dunkin' Donuts up 8.1%. What's more, Dunkin' Donuts is still primarily an Eastern phenomenon and could have further growth potential as it stretches west and challenges Starbucks (NASDAQ:SBUX) on its own turf.
As for the price paid, this business reaped about $224 million in sales for the first half of the year. Don't be confused by some of the numbers you see in media reports, though, that peg sales at about $4.8 billion. Dunkin' Brands is largely a franchise concept, so that $4.8 billion number has to do with the revenue that goes into the stores as opposed to the revenue that comes to the company via franchise fees and such.
In any case, the deal seems to value the business at more than five times sales -- a generous valuation compared with the likes of Starbucks or Caribou Coffee (NASDAQ:CBOU). Of course, it's not that simple. Because Dunkin' Brands relies on a franchise model, it's more profitable -- producing an operating profit of almost $80 million in the first half and an operating margin of almost 36%. That suggests a much different valuation picture, but it's tough to say much without clear and definitive financial statements, and these private equity investors have no reason to provide that information to the market.
This could prove to be the beginning of an interesting story. I wouldn't say that Allied Domecq/Pernod mismanaged the business, but I do think it will benefit from more focused and experienced owners (Bain owns part of Burger King and Domino's Pizza (NYSE:DPZ), and Lee Partners bought and sold Snapple). Provided that Dunkin' Brands can succeed where Krispy Kreme (NYSE:KKD) failed and can continue to build solid comps, a public offering could someday be in the works. Then we could all watch the battle between coffee with fried dough rings and high-end coffee with biscotti.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
