Restaurants are scrambling to meet new demands from diners who want cuisine they believe is healthy, responsibly-sourced, budget-friendly and often ethnic or regional. Diners also want meals delivered to them quickly, either in a setting that is vibrant, or in the relative peace and quiet of their own homes. All the new requirements are spawning a wide array of restaurant types and a lot of M&A along the way.

Since the recession, consumers have spent less money on dining out. As the restaurant industry has come under pressure, the strongest concepts have survived, and consolidation is now rampant. Dealmaking is currently very active, with private equity firms, strategic buyers and venture capitalists investing in seven fast-growing categories:

1. Better-for-you eats
Consumers are more focused than ever on the impact of food on their own health, as well as on the health of the environment, and they are flocking to restaurants that provide ingredients considered fresh and “natural.”

“People want real food, sourced locally and then cooked from scratch by real chefs,” says Jeff Larsen of Larsen MacColl Partners, which invested in Harvest Seasonal Grill & Wine Bar in 2016. “Harvest delivers that product in a professionally-managed, comfortable setting at prices that are conducive to repeat visits.” Founded by restaurateur Dave Magrogan and headquartered in West Chester, Pennsylvania, Harvest partners with 75 local farms to offer ever-changing menus with heirloom tomatoes, cedar-roasted organic salmon and grass-fed bison burgers.

Harvest currently owns five restaurants in Pennsylvania, one in New Jersey and one in Florida, with ambitions to add 20 more. “Harvest directly addresses a gigantic market – suburbanites seeking new, quality dining options – so there is an equally large growth opportunity,” says Larsen.

The farm-to-table movement is sowing deals. In August, New York fast casual restaurant operator Fresh&co, which features seasonal organic cuisine at its 10 Manhattan locations, bought a 35-acre farm on Long Island to grow produce and raise livestock to supply its restaurants. Fresh&co is owned by ST Management, which also operates the Café Metro chain.

In July, Advent International agreed to acquire a majority stake in breakfast café operator First Watch Restaurants, which offers a mix of farm-to-table and “indulgent” menu choices, from Freeman Spogli & Co.

“It’s an interesting time in the business. You have massive external factors impacting structure,” says Nick Marsh, CEO of Chop’t Creative Salad, which owns about 50 salad shops, mostly in the East, and is backed by PE firm L Catterton and Hain Celestial Group. “You can’t be fighting the changes that are coming at you right now,” Marsh says. “You have to find a way to embrace them.”

Seeking deals is one way Marsh is meeting the challenges. In 2016, he led a group that invested $10 million in Dos Toros Taqueria, which operates 13 restaurants in New York. The restaurants are known for burritos, with grilled chicken or steak, and quesadillas. Most of the ingredients the company uses are raised naturally, according to the website. Dos Toros was founded by brothers Leo and Oliver Kremer, who are originally from San Francisco. Leo once played bass for rock band Third Eye Blind. Dos Toros is planning to expand to Chicago, but the two brothers remain cautious. “We are very careful in how we measure growth. We remain opportunistic in finding great real estate,” says Oliver Kremer. “We’ve seen brands grow too quickly, then die.”

Other recent better-for-you restaurant deals include JAB Holding Co.’s purchase of bakery-café chain Panera Bread for about $7.5 billion. St. Louis-based Panera, which operates more than 2,000 locations, describes its mission as: “raising, serving and eating food that is good, and good for you.”

2. Following in Chipotle’s footsteps
In an effort to enhance the customer’s experience, some restaurants are setting up models similar to the one pioneered by Chipotle Mexican Grill Inc. (NYSE: CMG), in which diners select the ingredients that go on their plates.

In 2017, Cleveland Avenue LLC acquired PizzaRev in a deal with undisclosed terms. Cleveland Avenue is a venture capital firm started by former McDonald’s Corp. (NYSE: MCD) CEO Don Thompson in 2017. The Chicago firm focuses on restaurants and food and beverage investments. Buffalo Wild Wings (Nasdaq: BWLD) sold its minority stake in PizzaRev in the deal. PizzaRev, headquartered in Los Angeles, operates 46 restaurants across 11 states. The company uses a “craft your own” approach to pizza, which is cooked in three minutes in a 900-degree stone oven.

Strategic buyers are also going after companies with the craft-your-own approach. In 2016, Rosemead, California-based Panda Restaurant Group Inc., one of the largest privately held fast casual Asian restaurant operators, acquired a minority stake in Pieology Pizzeria. Pieology calls itself “the Chipotle of pizza” by letting customers build their own pizzas where they choose from eight sauces and more than 40 meats, cheeses, vegetables and spices, all made on a 11.5-inch thin pizza crust. Rancho Santa Margarita, California-based Pieology has more than 100 locations. Pieology acquired competitor Project Pie for undisclosed terms in 2016. Pieology CEO Carl Chang said at that the time that “consolidation was the future for the fast casual pizza segment.”

3. Ethnic and regional
Americans come from all over the world, and they want food that reflects their diversity. Indian fast-casual brand Curry Up Now acquired rival Tava Kitchen of Palo Alto, California, for an undisclosed amount in 2017. “With this acquisition, we are confident that we will be able to combine our vision of Indian food and a fantastic guest experience to grow the Curry Up Now brand worldwide,” says CEO Akash Kapoor.

Curry Up, founded in San Francisco in 2009, tries to take “traditional Indian flavors and present them in a friendly, recognizable way,” says the company. Curry Up is known for tikka masala burritos and deconstructed samosas. Curry Up operates five restaurants in California along with five food trucks under the same brand. Tava previously had backing from CircleUp Growth Fund, Kensington Capital, Agilic Capital and former Smashburger CEO David Prokupek through HiGrowth Advisors. Those investors exited their stakes as the result of the sales.

And at the end of the 2015, General Atlantic made a minority growth investment in fast-casual operator Barteca Holdings, joining existing investor Rosser Capital Partners. Norwalk, Connecticut-based Barteca owns the Barcelona Wine Bar and Bartaco brands. Barcelona Wine Bar serves Spanish wines and tapas, like beef empanadas. Bartaco’s menu consists of baja fish tacos (spicy tempura and battered cod with chipotle slaw), and spicy chorizo tacos, served with Argentinean pork sausage. The two businesses own about two dozen restaurants combined with most of them located on the East Coast. Barteca is planning on adding at least three more restaurants to each business by the end of 2017.

Investors, particularly strategic buyers, are going after restaurants that feature food that is inspired by a specific region. In 2017, Olive Garden owner Darden bought Irving, Texas-based Cheddar’s Scratch Kitchen from L Catterton and Oak Investment Partners for $780 million. Cheddar’s menu includes New Orleans pasta, which consists of shrimp, chicken, smoked sausage, onions, peppers and penne pasta tossed in spicy Cajun alfredo sauce that is served “in a polished yet warm atmosphere.” Cheddar’s operates more than 150 restaurants throughout the East and Midwest coasts. “This is a mature industry, and we believe that some consolidation makes sense and that’s what we’re trying to do,” Darden CEO Gene Lee told investors.

Strategic buyers are aware of the intense competition in the restaurant space and are using acquisitions to look for new growth channels while diversifying their menus. Burger King owner Restaurant Brands International Inc. agreed to purchase Popeyes Louisiana Kitchen Inc. (Nasdaq: PLKI) in 2017 for about $1.8 billion. The deal gives both companies additional opportunities for international expansion. Popeyes, located in Atlanta, is known for its handcrafted chicken tenders and Louisiana style popcorn shrimp that are sold to consumers who are looking for a quick bite. Popeyes has more than 2,600 restaurants worldwide that are decorated with bright orange and red colors, and Restaurant Brand executives indicated they will accelerate Popeyes global development. There are over 600 Popeyes restaurants based abroad, with the majority of them being concentrated in Turkey and South Korea.

4. Bar hopping
You’ve “got more high-energy bar-centric concepts that are more appealing to the next generation,” says Larsen. His firm backed Burger & Beer Joint in 2016. The Boca Raton, Florida-company describes itself as a “full-service concept in an energetic, fun atmosphere” and serves more than 75 types of beer. B&B operates seven locations on the East Coast and one in Puerto Rico. And in 2015, the PE firm backed City Tap House, which offers a craft beer program and bar snacks such as 10-spice wings and blue crab mac and cheese. Larsen MacColl also backs Tin Roof Bars, which provides live entertainment while serving bar food including Dixie Biscuits, or fried biscuit sliders. Nashville-based Tin Roof operates more than a dozen locations.

5. Dining out at home
There’s a booming business in meals prepared for people at home, a phenomenon attracting a wide range of companies, including restaurants, grocery stores and e-commerce experts. Amazon.com Inc. (Nasdaq: AMZN) has been experimenting with delivery models and is well poised to use technology to revolutionize food delivery, just like it transformed consumer goods. To that end, the company announced in June that it is buying Whole Foods, a grocery store chain popular on the East coast that aims to sell the “highest quality natural and organic products available.” The $13.7 billion Whole Foods purchase is expected to be a game changer. It has already triggered at least one significant deal. In August, Grubhub Inc. (NYSE: GRUB) agreed to acquire Yelp Inc.’s (NYSE: YELP) online food-ordering business, known as Eat24, for $287.5 million.

The food delivery business has been receiving a lot of interest from dealmakers for a while. The week after Amazon announced the Whole Foods purchase, Nestlé USA said it was taking a minority stake in online meal provider Freshly, which provides a subscription service for cooked, ready-to-heat meals delivered to consumers. Freshly’s menu features 30 meal combinations including: Sicilian-style chicken parmesan with broccoli; and steak peppercorn with sauteed carrots and asparagus. And back in 2016, L Catterton acquired a stake in Home Chef, which offers a meal-kit subscription service. Home Chef delivers pre-portioned ingredients and recipes that, it says, can be prepared within 45 minutes.

6. Quick service, a.k.a. fast food
Meanwhile, fast food restaurants, which the industry refers to as “quick service,” continue to attract busy consumers. In a closely watched 2017 deal, Oak Hill Capital Partners purchased Checkers Drive-In Restaurants Inc. from Sentinel Capital Partners for $525 million. Checkers, based in Tampa, Florida, operates about 840 restaurants across 29 states (mostly in the East and Southeast), under the Checkers and Rallys brands. The target is known for serving burgers, such as the Big Buford, through its drive-through locations. The Big Buford is made with two beef patties, two slices of melted American cheese, crisp iceberg lettuce, a slice of tomato, red onion, dill pickles, ketchup, mustard and mayonnaise on a toasted Kaiser bun.

On the strategic buyer side, in 2016, the franchisee for the Wendy’s Co. (Nasdaq: WEN) in Japan, backed by the Longreach Group, acquired rival fast food chain First Kitchen Limited from Suntory Holdings Limited. First Kitchen is known for making bacon egg burgers and “flavor potato” French fries. Wendy’s, based in Dublin, Ohio, made the move as part of its international growth strategy.

7. Fast casual and casual dining
In addition to all the M&A going on in nascent restaurant categories, classic full-service “casual dining” continues to consolidate. In August, J. Alexander’s Holdings, Inc. (NYSE: JAX), which owns three upscale restaurant chains (J. Alexander’s, Redlands Grill and Stoney River Steakhouse and Grill), agreed to acquire 99 Restaurant & Pub from Fidelity National Financial Inc. for $199 million. Based in Woburn, Massachusetts, 99 operates 106 restaurants in the Northeast and East. In May, Red Lobster owner Golden Gate Capital completed the $565 million purchase of Bob Evans Restaurants from Bob Evans Farms Inc. (Nasdaq: BOBE). The target operates 522 full-service eateries in 18 states, mostly in the Midwest and Southeast. The menu contains a Farmer’s Choice Breakfast, which comes with: three hotcakes, one crepe or two pieces of brioche French toast, two eggs, hash browns, home fries or grits, and a choice of meat.

On the PE side, Roark Capital stands out as one of the most prolific firms investing in restaurants. In July, Roark acquired a majority stake in casual-dining chain Jim ‘N Nick’s Bar-B-Q. The Birmingham, Alabama-based target operates 37 eateries across Alabama, Colorado, Florida, Georgia, North Carolina, South Carolina and Tennessee. The chain is known for cheese biscuits, but also offers traditional Southern style barbecue, such as Carolina-style pork (chopped pork, tossed with Eastern Carolina-style vinegar-pepper sauce.)

Roark also backs “fast casual” restaurants, which offer a hybrid of fast food and casual dining by enabling diners to order for themselves at a counter while also providing tables for those who want to stay and eat. In 2016, Roark invested in Jimmy John’s Sandwiches. Founded in 1983 by entrepreneur Jimmy John Liautaud, the Champaign, Illinois-based chain has about 2,700 locations and nearly $2 billion in sales. The sandwich maker is known for the J.J. Gargantuan, which features genoa salami, smoked ham, capicola, roast beef, turkey and provolone cheese, topped with onions, mayonnaise, lettuce, tomato and homemade Italian dressing, all served on a French bun. In 2015, Roark invested in Naf Naf Grill, which provides Middle Eastern cuisine in an Americanized format. Naf Naf serves dishes, such as Chicken Shawarma, which has been marinated in a dry rub overnight and roasted throughout the day, and is served in pita bread. Some of Roark’s other restaurant investments include: Auntie Anne’s, Carvel, Cinnabon and Moe’s Southwest Grill.

Strategic buyers are also looking to expand in fast casual. “We have a diversified set of incremental investment opportunities,” said Matthew Clark, chief financial officer of the Cheesecake Factory Inc. (Nasdaq: CAKE), at a June conference hosted by Piper Jaffray Cos. (NYSE: PJC). In 2016, the Cheesecake Factory acquired a minority stake in Flower Child, which sells “all-natural” chicken, “sustainable” salmon and vegan dishes made from scratch daily, according to the restaurant. Flower Child, controlled by Fox Restaurant Concepts LLC, operates seven fast-casual locations in Arizona, Texas and California. The Cheesecake Factory, which owns more than 200 restaurants under its own name and the Grand Lux Café brand, plans to develop its own fast-casual brand.

“The environment has been competitive ever since the recession. It’s a market share game,” Clark said. “The winners will be defined by who has the most compelling food.”

Demitri Diakantonis

Demitri Diakantonis

Demitri Diakantonis serves as Assistant Managing Editor. He joined Mergers & Acquisitions in 2015 as a Senior Reporter.