- Inspire Brands acquired Dunkin' Brands Friday for $11.3 billion including the assumption of Dunkin's debt, in what is easily the largest deal between two restaurant companies of the year. The transaction is expected to close by the end of 2020.
- Inspire will buy Dunkin' for $106.50 per share, resulting in a valuation of roughly $8.8 billion. With the deal, the parent of Dunkin' and Baskin-Robbins will go private.
- This acquisition is Inspire's fourth buy in the last four years after Arby's formed the holding company in 2018 following its purchase of Buffalo Wild Wings. It acquired Sonic in 2018 and Jimmy John's in 2019, and now has over 31,000 total units under its umbrella.
With this deal, Inspire grows from over 11,000 restaurants to more than 31,000 units with the addition of Dunkin’s over 20,000 restaurants, making it one of the largest multi-brand platforms in the industry. Inspire could soon rival the likes of Yum Brands, which has 50,000 restaurants across its four brands.
Inspire will also gain over $1 billion in revenue and about $12 billion in systemwide sales, based on Dunkin’s 2019 yearend results. With Dunkin’, Inspire, which previously had about $14.6 billion in system sales, will generate systemwide sales of over $26 billion.
Dunkin’ is also on more solid footing compared to where it was at the start of the pandemic. It is in the process of closing 800 underperforming units from its system and grew its U.S. same-store sales by nearly 1% in Q3 2020 compared to a decline of 18.7% during Q2 2020.
"The acquisition makes sense as it gives Inspire an established national brand with Dunkin', more significant exposure to the breakfast daypart and a concept with significant long-term unit potential," BTIG said in a report on the transaction. "That said, these attributes come with a hefty valuation that is significantly above comparable acquisitions over the past decade and Inspire's own previous acquisitions."
With a price of $106.50 per share, the acquisition is 10 times the premium to that of Sonic and would be the highest amount paid for a franchised business in the past 10 to 15 years, BTIG said.
"We are excited to bring meaningful value to shareholders who have been with us on this journey and believe that Inspire Brands... will continue to drive growth for our franchisees while remaining true to all that is unique and special about the Dunkin’ and Baskin-Robbins brands," Dunkin’ Brands CEO Dave Hoffman said in the release.
Hoffman added that Dunkin' and Baskin-Robbins "will strengthen Inspire through their scaled international platform and robust consumer packaged goods licensing infrastructure, as well as add more than 15 million loyalty members."
But Inspire also has some work to do, especially if it wants to get its biggest bang for its buck. Dunkin’ is reaching saturation in the East, particularly in the Northeast, and Inspire Brands will need to come up with a game plan to expand Dunkin’ further into the West, BTIG said.
This deal could also signal that acquisition appetites are growing for major players in the space, but how and in what way will depend on the financial health of the strategic buyer and potential seller. Strategic buyers will have to really consider whether or not they can justify deploying capital for an acquisition or if they need to just preserve as much liquidity as they can survive the next six months, Josh Benn, managing director of Duff & Phelps, said.
"There is still a tremendous amount of capital and there’s a lot of financing available to fund transactions," Benn said. "There’s going to be absolutely specific circumstances where there are well capitalized strategic players that are looking to participate more fully in the limited service side of the landscape and will be aggressive to buy strongly performing businesses."