Parradee Kietsirikul
Darden Restaurants (DRI) shook up the restaurant sector on Wednesday by announcing its first M&A action in six years with the acquisition of Ruth’s Hospitality Group (NASDAQ:RUTH) for $21.50 per share in cash.
Cowen analyst Andrew Charles said the $715M equity value deal represents 9.2X consensus 2023 EV/EBITDA estimate, which is noted to be a premium to the 7.4X average multiple for small cap full service peers such as BJ Restaurants (BJRI), Bloomin’ Brands (BLMN), Brinker International (EAT), Cracker Barrel (CBRL), Cheesecake Factory (CAKE), Chuy’s Holdings (CHUY), Red Robin Gourmet Burgers (RRGB), and One Group Hospitality (STKS).
The premium is big enough that Charles thinks another bid from a financial buyer is unlikely. Shares of Ruth (RUTH) closed at $21.48 on Wednesday, just $0.02 off the deal price.
Ruth’s Hospitality is noted to fit Darden’s (DRI) loose acquisition criteria for a full service brand not in need of turnaround and with the ability to make a difference in the portfolio over the next 5 years. Cowen likes that Ruth’s increases Darden’s exposure to the higher income consumer and gives it a small international presence with 22 locations across 9 countries. A surprise with deal is the willingness of Darden to increase exposure to the high-end steakhouse chain given the company’s ownership of 61 Capital Grill locations and 29 Eddie V’s.
