Darden Restaurants Inc. (NYSE: DRI) agreed to acquire Cheddar’s Scratch Kitchen for $780 million in cash, giving the owner of Olive Garden another restaurant brand it can use to fuel growth.
Darden is buying the chain from an investor group that includes private equity firms L Catterton and Oak Investment Partners, according to a statement. Cheddar’s, founded in 1979, has 165 locations across 28 states.
With casual-dining sales remaining sluggish, Darden is looking for new sources of expansion. And Cheddar’s provides strong annual volume per restaurant, Darden chief executive officer Gene Lee said. Each location averages $4.4 million a year.
“This addition will also enable Darden to further strengthen two of our most important competitive advantages: our significant scale and our extensive data and insights,” he said in the statement.
Darden also posted better-than-expected results for its third quarter, which ended Feb. 26. Earnings were $1.32 a share, excluding some items, topping the $1.27 average estimate. Same-store sales gained 1.4 percent at Olive Garden, its flagship chain. Analysts had estimated a 0.4 percent increase. The Orlando, Florida-based company also boosted its earnings outlook for the year. It now expects $3.95 to $4 a share, with same-store sales growing about 1.5 percent.
Darden expects to generate $20 million to $25 million in pretax savings from the merger by fiscal 2019. The deal will add 12 cents a share to earnings in 2018, excluding the initial costs of the integration, the company said.
Cheddar’s will become Darden’s eighth dining brand. The chain sells dishes such as pasta, sirloin steaks, grilled catfish and baby-back ribs. It also has a bar with cocktails, beer and wine.
Catterton and Oak bought Cheddar’s in 2006 when it had just 55 locations, betting that the business’s cooked-from-scratch approach could work on a larger scale.
Restaurant deals have been picking up lately. Golden Gate Capital has agreed to buy Bob Evans Restaurants from Bob Evans Farms Inc. (Nasdaq: BOBE); General Atlantic has taken a minority stake in Joe & the Juice; Oak Hill Capital Partners has agreed to purchase Checkers Drive-In Restaurants Inc. and Roark Capital bought a majority stake in Jimmy John’s Sandwiches.