No sector arguably has been hit harder during the pandemic than the restaurant industry. But despite dealmakers predicting a tough first half in 2023 for M&A, buyers still need to put cash to work. This includes looking at restaurant deals, where brands that have their finances in order and make themselves stand out will attract both PE and strategic buyers.

“Activity will be driven by both strategic buyers that are looking to add complementary and/or diversifying brands and concepts to their platforms, as well as those looking to capitalize on M&A triggers broadly,” says Josh Benn, a managing director and head of Americas M&A Advisory and global head of consumer corporate finance at Kroll. “We will likely see increased interest from financial investors also, whose interest will be based on multiple investments theses across a number of restaurant sub-segments including QSR, fast-casual and full-service platforms.”

There has been deal activity from both the strategic and private equity side. Earlier in December, Dine Brands Global Inc. (NYSE: DIN), the operator of Applebee’s Grill + Bar and IHOP restaurants, acquired Fuzzy’s Taco Shop from NRD Capital Management for $80 million. Fuzzy’s is a fast-casual restaurant that serves Mexican cuisine. The target boasts 138 franchise- and corporate-owned locations across 18 states. Dine Brands CEO John Peyton at the time called Fuzzy’s “a compelling business with a loyal customer base and a distinct identity.”

It’s not just corporates that are backing restaurant chains. In October, private equity firms BRS & Co. and Rosser Capital Partners acquired Tumble 22 Holdings LLC, a chicken restaurant chain that has five locations across Texas. Tumble CEO Guy Villavaso said at the time that the investment will help the company “develop its brand across a broader geographic area.”

Benn adds that another deal driver will be buyers “investing behind differentiated concepts that are weathering the inflationary and consumer demand environment relatively well,” making the sector “poised for strong market share gains once the cycle turns in late 2023 going into early 2024.”

Time to set the table for restaurant deals in 2023.

Demitri Diakantonis