Private equity had a hankering for fish tacos last week, as Mill Road Capital agreed to buy fresh-Mex specialist Rubio's Restaurants
The deal for the stateside pioneer of fish tacos comes just weeks after CKE Restaurants
If these two deals aren't ringing dinner bells, you're just not listening hard enough. Restaurants have become popular acquisition targets, a trend that's likely to intensify in the coming months.
Several factors suggest that these buyouts are simply starter courses:
- The economy appears to have bottomed out, and consumers are likely to eat out more often now, with the promise of better times ahead.
- Commercial real estate remains in a state of flux, leaving plenty of high-traffic locations available to expand concepts at fire-sale prices.
- Valuations, for the most part, remain quite reasonable for an improving industry.
Where will hungry buyers strike next? I have a few ideas:
California Pizza Kitchen
OK, I may be cheating on this one. The company pretty much put itself on the block last month, announcing that it would explore "strategic alternatives" to boost shareholder value. Comps are running slightly negative, and should remain that way for the current quarter. However, California Pizza Kitchen enjoys fairly consistent profits and a great brand.
McCormick & Schmick's
High-end seafood is a hard gig in a soft-shelled economy. Comps fell a devastating 9.6% in its latest quarter, with a third of that dip came from lower check prices. Diners will come around, but private equity firms will likely get there first.
As one of the true stars of casual dining, Cheesecake Factory has struggled with its big prices and even bigger portions. Sentiment is turning, though. A Robert W. Baird analyst upgraded the stock last week, citing a recent uptick in traffic. Comps did indeed rise at both its namesake and Grand Lux concepts in its latest quarter.
These are the stocks to watch. Don't focus entirely on market darlings such as Panera Bread
The deals will continue. Come hungry.
Which eatery do you think private equity will acquire next? Share your thesis in the comment box below.
Longtime Fool contributor Rick Munarriz could really go for a burrito about now. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.