Why Did Mimi's Fetch So Little?
When news first broke that Bob Evans was looking to sell Mimi’s Café, one estimate put the price for the chain at over $200 million. Instead, it sold this week to LeDuff America for $50 million. But not even that gives a full indication of how much the price for Mimi’s has declined in the year it’s been for sale.
Bob Evans may not get that full price. That’s because the Columbus, Ohio company is financing $30 million of the deal, and the financing is contingent on the chain’s excess cash flow. In other words: it’s possible that Bob Evans may only get $20 million for the 145-unit casual dining chain.
To be sure, the deal includes protections for Bob Evans, notably a provision that requires LeDuff to spend at least $10 million within the first 18 months on revamping the chain either through capital expenditures or advertising and marketing. That ensures that LeDuff won’t let the property rot for two years to keep the price down.
Still, the deal demonstrates how eager Bob Evans was to unload its second concept. Seller financing is common in restaurant sales, and has become more common in the aftermath of the recession and the credit crisis. But it tends to be used more with small independent restaurant concepts or franchisees.
Seller financing is typically used when the seller wants to encourage the buyer to pay a bit more for the concept, but is typically 20 to 30 percent of the price. In this case, it’s 60 percent of the purchase price, and LeDuff sought protection if it couldn’t get the chain to make money.
Even at $50 million, the price for Mimi’s is just 3X EBITDA, which is extraordinarily low for a restaurant chain. If the worst-case scenario comes true for Bob Evans, the multiple sinks to not even 1.5X.
The main problem for Bob Evans is that it sold the concept as its sales were in a free-fall. Mimi’s hasn’t had a quarterly increase in same-store sales in 28 quarters, since the fall of 2005. Unit volumes have fallen by $1 million, and the sales decline seems to be worsening. It’s difficult to price a chain when sales and profits are falling.
The decline likely spooked other buyers, including HIG Capital, a turnaround specialist that had been looking into Mimi’s but which backed off. And Bob Evans had little choice but to sell Mimi’s, which is unprofitable, hasn’t been able to reverse its sales slide and isn’t part of the company’s core business, which is now focused on its flagship brand and its grocery business.
All that said, this is a great deal for LeDuff, which gets a chain that fits right in its wheelhouse—Mimi’s is, after all, a French-themed concept. And LeDuff, owner of Bruegger’s, is a subsidiary of the French company Groupe LeDuff. And it only has to pay about $137,000 per unit in cash. It could make its cash back in one year with just a few cost cuts. Of course, those cuts could increase that price, but nevertheless it’s a level that could make some other potential bidders kick themselves for not taking a deeper look at Mimi’s. “That’s like a gift,” one investment banker told us privately.
Still, it’s not like the deal hasn’t been all that bad for Bob Evans. Since the company acknowledged it was looking for a buyer for Mimi’s, its stock has gone up 22 percent—adding nearly $223 million to the company’s market cap. That more than offsets the low sale price.