M&A daily wrap: PE-backed restaurants, Kroger, Home Chef, FanDuel, Paddy Power Betfair, Twin Brook
Private equity investors are hungry for restaurants, despite intense competition and raised expectations on the part of consumers, according to consulting firm RSM. About $6.4 billion has been invested in the restaurant, hotel and leisure sector in the first quarter of 2018, compared with $30 billion for all of 2017. Tastes for healthy meals, ethnic foods and convenience, including delivery and mobile ordering, are among the main trends shaping the restaurant industry. For instance, Bain Capital Double Impact is backing vegan restaurant chain By Chloe; ButterFly Equity bought farm to table fast casual restaurant chain Modern Market; On the ethnic side, Rhone Capital paid $560 million for Brazilian steakhouse chain Fogo de Chão Inc. "As tastes and preferences continue to change, the industry will likely create a deeper divide between successful and unsuccessful restaurant operators," the report says. "Those who respond in a timely, effective way will have more opportunity to thrive while others may struggle to survive." For more on M&A trends in restaurants, read: What's attracting hungry buyers to restaurants? Here are 7 trends.
Kroger Co. (NYSE: KR) has agreed to acquire online meal-kit maker Home Chef for up to $700 million. The purchase price consists of an upfront payment of $200 million and up to $500 over the next five years based on milestone achievements, including growth of in-store and online meal kit sales. Home Chef generated $250 million in revenue in 2017. L Catterton is one of Home Chef's backers. "We've long believed that the future of our industry is omni-channel and bigger than just meal kits sold online. We want to be where our customers are and want to help make cooking at home easier, more accessible and even more enjoyable," says Home Chef founder Pat Vihtelic. Weil Gotshal & Manges LLP is representing Kroger and Sidley Austin LLP is doing the same for Home Chef. After the deal closes, Kroger will make Home Chef meal kits available to Kroger customers, both in stores and online. Grocers are racing to keep up with rising competition from the meal-kit makers, as consumers seek healthier and more convenient options. "I think many groceries have had to step back and think about how to differentiate themselves from the traditional grocery model, determine how they can be competitive, and what makes the most sense to change," says Mary Rodwogin, a managing director at Seattle-based advisory firm Exvere. In 2017, Albertsons bought Plated. For more deal activity in meal-kits, see our in-depth feature.
“You have to go out and make deals happen; they’re not going to occur on their own,” says TA Associates managing partner Ajit Nedungadi about the private equity firm’s focus on deal origination. Headquarterd in Boston, TA has invested about $20 billion in nearly 500 companies since the firm was founded 50 years ago in 1968. TA backs companies in five industries: technology, healthcare, financial services, business services and consumer. The firm invests in companies across North America, Europe and Asia. Nedungadi co-heads the Core Investment Committee, heads the firm’s European efforts out of London and is actively engaged in investments in India. We asked Nedungadi about TA’s investment strategy in Europe and the firm’s culture, including the focus on proprietary deal flow. Read the full story: At TA Associates, “you’re either working a live deal or hunting for the next one.”
TA Associates-backed construction data provider Think Project! has acquired contract management firm Cemar to expand in the U.K. Financial terms were not disclosed.
Sports betting and gaming provider Paddy Power Betfair has agreed to acquire a 61 percent stake in fantasy sports company FanDuel. The deal comes on the heels of the U.S. Supreme Court's turning down a 1992 federal law that barred most states from authorizing sports betting, and could pave way for states to allow sports gambling. Moelis & Co. (NYSE: MC), Wilson Sonsini Goodrich & Rosati and Shepherd and Wedderburn are advising FanDuel. Goldman Sachs (NYSE: GS) and Blank Rome are advising Paddy Power.
Madison Dearborn Partners has agreed to buy moving services company Sirva Inc. from Aurora Resurgence and Equity Group Investments. Financial terms were not disclosed. Goldman Sachs & Co. (NYSE: GS) and Weil Gotshal & Manges are advising Sirva. Kirkland & Ellis is representing Madison Dearborn.
RIver Associates bought GAHH LLC, a manufacturer of automotive aftermarket convertible tops, Jeep tops, and vehicle interiors. The buyer received financing from Abacus Finance Group.
ExamWorks, a provider of bill reviews, Medicare compliance and document management, has bought MedSource National. The target offers independent medical exams. Bailey Southwell advised MedSource.
Software testing and business assurance company QualiTest Group agreed to buy NCC Group SDLC, the software testing business unit of NCC Group plc. Financial terms were not disclosed.
Alston & Bird partner Thomas Feddo has been named U.S. Treasury Deputy Assistant Secretary for Investment Security, where he will be responsible for the day-to-day operation of the Committee on Foreign Investment in the United States (CFIUS). His appointment was made by Treasury Secretary Steven Mnuchin. Feddo, who was a member of Alston & Bird’s international trade and regulatory group in the firm’s Washington, D.C., office, will oversee Treasury’s responsibilities as chair of CFIUS, an interagency committee that reviews certain foreign investments in the United States to identify and address any effects on U.S. national security that may arise from the transactions.
Christi Davis has joined McGuireWoods’ securities practice in Pittsburgh as senior counsel. Davis was most recently with PNC Financial Group where she was managing chief counsel and corporate secretary.
Ken Gonzalez was hired by cybersecurity firm NightDragon Security as a managing director. In addition, NightDragon has formed a strategic partnership with Momentum Cyber to provide M&A advisory to cybersecurity companies.
Creolus Ltd. has launched Creolus fund, a fund that will focus on investing in materials and processes to repurpose, redesign and recycle fossil-fuel-derived plastics in bioplastics. The fund will invest 70 million across early stage growth companies. 5Capital Fund Placements advised Creolus.
More covenant-lite loans are “bleeding down” to the middle market, says Twin Brook Capital Partners co-founder Trevor Clark in this video interview, in which he discusses the downside of loosening lender protections. “There are clearly some groups out there that haven’t had as much experience lending through a credit crisis." Twin Brook won Mergers & Acquisitions' M&A Mid-Market Award for 2017 Lender of the Year. Also, read our Q&A: Lenders must be active partners, says Twin Brook's Trevor Clark.
For more on the rise of cov-lite loans, see our Q&A with Ken Kencel, CEO of Churchill Asset Management: CLOs are huge draw for income-hungry investors, says Churchill CEO Ken Kencel.
To gain insights on how lenders evaluate potential transactions in today's highly competitive market, we asked Madison Capital Funding's chief underwriting officer Jennifer Cotton to share her thoughts. Cotton oversees Madison's underwriting and portfolio management teams and serves as a member of the Investment Committee as well as the Senior Leadership team. Read the full story here: Abundance of capital drives highly competitive loan process, says Madison Capital's chief underwriter.
Axial Networks, Donnelley Financial Solutions, FD Fund Administration, Valuation Research Corp., RSM and scores of other service providers are here to help in our annual, updated Buyer’s Guide. Read the full story: From fund administrators to VDRs, dozens of firms help M&A pros compete.
Artificial intelligence, the Internet of Things, wearable biometrics and precision medicine are transforming dealmaking in the healthcare sector, says Essam Abadir, the CEO of Aspire Ventures, which recently teamed with the Penn Medicine Lancaster General Health network of hospitals to launch a $300 million fund to invest in personalized medical devices and practices. Read our Q&A with Abadir.
Read full coverage of Mergers & Acquisitions' 11th annual M&A Mid-Market Award winners: Campbell Soup, Huron Capital, Idera CEO Randy Jacops, LLR Partners, McGuireWoods, Stryker, Twin Brook and William Blair.