Inspire Becomes Restaurant Giant in $11.3 Billion Dunkin’ Deal

Just two years after its founding,Inspire Brands Inc. took a major step toward its goal of building a full-spectrum collection of restaurants with the $11.3 billion acquisition ofDunkin’ Brands Group Inc.

The dealannounced Friday, whose price includes assumed debt, is the restaurant industry’ssecond-largest transaction ever and the most expensive based at about 23 times Ebitda. Adding Dunkin’ Brands gives Roark Capital Group-backed Inspire its first chain focused on coffee and breakfast, a large market facing turbulence from the pandemic.

Since bursting onto the scene in 2018 with the merger of Arby’s and Buffalo Wild Wings, Inspirehas acquired Sonic Corp. and Jimmy John’s, giving it more domestic locations than industry stalwarts such as Wendy’s. One analyst said that while the breakfast chain has done well in the shifting environment, the valuation is “aggressive” and unlikely to stir any rival bids.

“Dunkin’ has been different from the other companies that Inspire bought recently,” said Michael Halen, an analyst with Bloomberg Intelligence. “Dunkin’ has not been struggling. They managed the pandemic really well.”

Inspire will take Dunkin’ private at $106.50 a share, the companies said Friday in a statement. That represents a 20% premium over the closing price of Oct. 23, before reports of deal talks sent shares soaring, and 6.8% higher than Friday’s close.

With Dunkin’ Brands, Inspire would almosttriple its number of restaurants to 31,600 worldwide, landing ahead of Burger King-ownerRestaurant Brands International Inc. and trailing only Taco Bell parentYum! Brands’ 50,000 global locations. The addition of Dunkin’ would alsoescalate Inspire’s systemwide sales, a measure that includes sales by franchisees, to $26 billion from $14.6 billion.

Inspire’s Strategy

Inspire was co-founded by Arby’s former chief executive officer, Paul Brown, and Neal Aronson, who started private-equity firm Roark Capital Group. Inspire is seen as actively involved in the operation of its portfolio companies, pushing changes such as new menu items to reinvigorate sales. The company “is best known for its turnaround efforts,” KeyBanc analyst Eric Gonzalez said in an Oct. 25 note.

Brown told the Wall Street Journal in 2018 that he wanted to organize Inspire like the Hilton hotel chain, where he once worked, with “brands that span multiple occasions.” That’s unusual in the restaurant industry, where multibrand companies typically own similarly focused chains.

Dunkin’ Brands has a “100% franchised business model” and makes money from royalties and licensing fees from the stores. Of the sales generated from these locations, a fifth came from overseas locations, where it has a footprint in more than 60 countries from Latin America to Asia and the Middle East, wider than Inspire’s current presence in 14 countries. The company also generates income from leasing properties to franchisees and selling ice cream to Baskin-Robbins stores.

Roark Capital had made another restaurant bet during the pandemic, investing$200 million into Cheesecake Factory in April. With $19 billion on assets under management, the Atlanta-based private equity firm has a portfolio that spans across food, health and wellness. Roark Capital said it is named after the protagonist in Ayn Rand’s book “The Fountainhead” for his commitment to contrarian viewpoints.

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