What's going on?
Shares of Buffalo Wild Wings, the restaurant and sports bar chain, jumped almost 25% on Tuesday after The Wall Street Journal reported that an investment firm had made an offer to buy it for over $2 billion.
What does this mean?
Buffalo Wild Wings has struggled in recent years as the price of chicken wings has gone up (one of its main costs) and traffic to its restaurants has slowed. The company attracted the attention of an activist investor, Mercato Capital, which successfully obtained board seats earlier this year.
The potential buyer, Roark Capital, is a private equity firm that already owns stakes in restaurants like Arby’s and Carl’s Jr. According to the report, it’s prepared to pay $150 per share – almost 50% higher than the price of the shares when the offer was first made (behind the scenes) about a month ago.
Why should I care?
For the market: It’s unclear if Roark is offering a high enough price.
Mercato accumulated its stake in Buffalo Wild Wings when the stock price was around $140-150, meaning Mercato wouldn’t make much at a takeover price of $150. Also, Buffalo Wild Wings recently increased its prediction for its future profit; investors may not want to sell if they think the company’s performance is just beginning to improve. Nevertheless, the share price closed near $150 on Tuesday, suggesting the market thinks there’s a decent chance a deal gets done.
The bigger picture: There has been a raft of deal making in the restaurant sector.
European investment firm JAB recently bought both Panera Bread and Krispy Kreme; Ruby Tuesday was taken over by a different investment firm in October. There’s a lot of competition in the industry following huge expansions in recent years, and costs for raw materials and labor (as, for example, minimum wages increase) are going up, denting profits. Like in other industries, by joining forces to create greater scale, restaurant companies can work to reduce their costs and better protect their profits.