Here Come the Luxembourgers! JAB To Buy Panera at $315 a Share


Mike Mozart

Most people outside the restaurant industry haven’t heard of Joh A. Benckiser, but that’s about to change. The family office-backed strategic investor that bought Krispy Kreme last spring for $1.35 billion is upping the ante on the U.S. coffee and café market by a huge amount.

Now, JAB will buy Panera for $315 a share for a total of $7.5 billion, including debt. That’s a premium of 20% that puts the sales multiple at a whopping 18.2 times 2016 EBITDA.

Many industry watchers couldn’t see anyone paying Panera’s lofty valuation—the stock traded at 15 times EBITDA just a week ago after a steady climb. But for a firm like JAB, $6.5 billion seemed like a logical price for the centerpiece of its coffee empire that includes full ownership or investments in Keurig Green Mountain, Mondelez Krispy Kreme, Peet's, Caribou Coffee, Stumptown, Mighty Leaf, Einstein Noah and Baresso Coffee. And once you can justify that price, what’s another $1 billion, or a paltry $340 million in debt to close the deal. 

It’s enough zeroes to get heads spinning, but it may have been perfect timing for JAB who was seen as a likely buyer in the rumor mill. Panera’s reported net income for 2016 was $145.5 million, the lowest reported net income by the company in the past five years. The company reported $196.2 million in net income in 2013, before it started investing in the Panera 2.0 initiative. Forward earnings projections from Bank of America and Baird put the deal at 16.8 times EBITDA, a discount compared with the Krispy Kreme acquisition that came in at 17.1 times EBITDA.

Panera CEO Ron Shaich, who holds 13.5% of the company, is certainly having a good day—one of many in the last five years.

Senior Analyst Robert Derrington of Telsey Advisors said on CNBC that Shaich placed his bets well and now has a nice payout coming.

“I look at Ron Shaich and I think of the song, The Gambler, by Kenny Rogers: ‘You've got to know when to hold 'em, know when to fold 'em.’” said Derrington. “Ron Shaich is a really sharp guy and I think he understands the business and is ready to cash in some chips.”

Shaich said in a statement that his bets continue to pay off.

"Over the last five years, we have developed and executed a powerful strategic plan to be a better competitive alternative with emerging runways for growth. The themes we have bet on - digital, wellness, loyalty, omni-channel, new formats for growth—are shaping the restaurant industry today,” said Shaich.

He also said that in the first quarter of 2017, company-owned bakery cafés saw same store sales growth of 5.3%, 6.9% better than TDn2k’s current Black Box composite. JAB bought into that and will fuel the next phase of growth.

“We believe this transaction with JAB offers the best way to continue to operate with this approach. We are pleased to join with JAB, a private investor with an equally long-term perspective, as well as a deep commitment to our strategic plan,” said Shaich.

The plans going forward are unknown, but the company will go private at the completion of the deal. It marks the largest deal in a flurry of activity over the past two months.

Lynn Collier, an analyst at Canaccord Genuity, said cash is the ultimate weapon in this time of market share battles.

“This deal marks the third and highest profile acquisition in the last 45 days across the restaurant space, following Restaurant Brands International's (QSR) deal with Popeyes and Darden's deal with Cheddar's. The last 12 months Enterprise Value/EBITDA multiples paid were 20.1x for Popeyes and 10.4x for Cheddar's,” said Collier. “With restaurant operators facing a highly competitive market for traffic and new unit growth, plus the rising tide of labor, we believe that consolidation may remain a theme as larger companies search for revenue growth and operational leverage.”

Roger Matthews, head of Bank of America Merrill Lynch’s restaurant investment banking group said while cash is a powerful weapon, the active strategic buyers aren’t buying bad brands.

“I think what this means is strong players have the ability to selectively and cautiously look at really good brands and make acquisitions,” said Matthews on the current M&A market after Darden’s acquisition of Cheddar’s Scratch Kitchen. “I don’t think it means other players can run out and immediately buy someone, you have to have the scale, you have to have the financial strength you have to have the operating momentum and a logical thesis.”

So buckle up for more M&A activity, but don’t expect multiples like this for everyone. 

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