Golden Gate Capital is buying restaurant chain Red Lobster from Olive Garden-owner Darden Restaurants Inc. (NYSE: DRI) in a $2.1 billion deal.
Red Lobster, headquartered in Orlando, Florida, operates about 700 casual dining seafood restaurants in the U.S. and Canada. The purchase price works out to about 9 times Red Lobster's Ebitda, according to Darden. The deal is expected to close in the first quarter of 2015.
San Francisco private equity firm Golden Gate has several other restaurant investments, including California Pizza Kitchen and On the Border, a restaurant chain that serves Mexican food. The firm's recent investments include a March deal for a majority stake in LiveVox Inc., a cloud-based contact center software developer, and the December purchase of Safety Technology Holdings Inc., a test and measurement-instrument business.
Darden, which also owns the Olive Garden, Longhorn Steakhouse and Capital Grille restaurant chains, expects to make about $1.6 billion in net proceeds. The company plans to use $1 billion to cut existing debt, and most of the rest to repurchase shares of its stock. Darden announced in December that it planned to spin off or sell Red Lobster. Darden says it will continue to work with adviser Alvarez & Marsal to identify opportunities for cost reductions and increasing revenue.
Goldman Sachs & Co. (NYSE: GS) is Darden's financial adviser, while Latham & Watkins is acting as legal counsel. Morgan Stanley is financial adviser for Darden's board of directors, while Wachtell Lipton Rosen & Katz is providing legal advice to the board. Deutsche Bank Securities Inc. and Jefferies are acting as Golden Gate's financial adviser on the deal.
Golden Gate has obtained committed debt financing from Deutsche bank AG, Jefferies and GE Capital, and has executed a $1.5 billion sale-leaseback agreement with American Realty Capital Properties Inc., which will help it finance the purchase.
Other recent restaurant M&A transactions include Red Robin Gourmet Burgers Inc.'s (Nasdaq: RRGB) purchase of 32 franchised Red Robin restaurants for $40 million in April, and Sentinel Capital Partners' March acquisition of Newk's Holding Co. LLC, which operates a 67-restaurant chain.
For more on restaurant M&A, see "Finance Finesse: Debt Markets Nourish Restaurant M&A."