Wants more
But finding right restaurant chain won’t be easy
The Orlando company that owns Olive Garden and LongHorn Steakhouse is searching for another chain, but industry watchers say the right company at the right price will be hard to find.
Darden Restaurants CEO Rick Cardenas said at the annual ICR Conference in Orlando last month the company is looking for someone willing to sell for the price Darden wants to pay, according to a report in Restaurant Business Magazine.
Cardenas also told the Orlando Sentinel last year he would want a full-service restaurant able to make a “meaningful difference” in Darden’s future.
There is probably a “very limited group” of possible restaurants for Darden to acquire, said Chris O’Cull, a managing director with the investment firm Stifel, which follows Darden Restaurants.
“It would have to be something special for them to acquire it,” O’Cull said. “The beauty is they’re in a great position. They have a really strong balance sheet with significant free cash flow and they have time because they can achieve their growth plans without needing anything new.”
San Diego-based restaurant analyst John Gordon agreed, after reviewing with the Orlando Sentinel more than 500 possible brands and finding a narrow list of potential options.
There are “not a lot of clear candidates that would fit the Darden criteria, but there are some,” Gordon said. “This is not to say that some other surprises might come up during Darden’s search process.”
Darden, already with more than 1,885 restaurants, last acquired Cheddar’s Scratch Kitchen in 2017 for $780 million. Cheddar’s had 165 restaurants at the time and 179 as of November of last year.
Cardenas’ requirement that the brand be a full-service restaurant rules out many national and local eateries, such as Tijuana Flats, a Winter Park-founded fast-casual chain of about 125 restaurants.
O’Cull said Darden would be looking for a company that can expand its restaurant footprint at a faster rate than its largest chain Olive Garden, which is growing at about 2% this year.
That doesn’t necessarily mean the brand would be opening more restaurants than Olive Garden, as a chain with 100 restaurants that grew to 110 would have a 10% growth rate while Olive Garden going from 884 to 903 would have a 2% growth rate.
“You want to be able to grow at the pace of your core business, if not faster,” O’Cull said.
He could see Darden acquiring a brand with about 150 restaurants, but has the potential to grow to 500 or 700 in the next 20 years.
“I think they would want to find a brand that has proven it is successful in various regions of the country but also has plenty of development left,” O’Cull said.
Gordon pointed out the difficulties of buying a restaurant that is already publicly traded, saying there is typically a 30% premium over the prior day’s publicly traded price. He added any leaks about a deal would make the stock price go up.
Chuy’s, a full-service Tex-Mex chain with about 100 locations in 17 states, could be appealing, but is a publicly traded company, Gordon said.
“The advantage to Darden with Chuy’s is that it’s a popularly priced family-oriented Mexican chain that is growing throughout the United States,” Gordon said.
Gordon said ideally Darden would target a chain with about 100 to 200 restaurants, but his review found it hard to find privately held brands in that range that could be appealing to Darden.
Some Gordon viewed as potentially interesting fell well below that preliminary ballpark. Bartaco, owned by private equity firm
L Catterton, has 25 restaurants, including one in Orlando on Dr. Phillips Boulevard. Its menu includes tacos, ceviche, rice bowls, margaritas and other cocktails.
Another Gordon found interesting, Lazy Dog, has more than 40 restaurants, with one planned for Kissimmee and a large amount already in California. Lazy Dog’s menu includes pot pie, barbecue bison meatloaf and a full bar.
Gordon added Darden’s portfolio should continue to mirror demographic changes in the United States.
Brazilian steakhouse Texas de Brazil, which has about 50 restaurants in the United States and more than 10 international locations, could appeal to families and large dining groups, Gordon said. It has an Orlando restaurant on International Drive.
Gordon pointed out some similarities to the appealing Fogo de Chão Brazilian Steakhouse chain but said that company is heading toward going public. Fogo de Chão filed paperwork to go public in 2021, according to Restaurant Business Magazine.
Gordon also saw potential in Cooper’s Hawk Winery & Restaurant, which has more than 50 locations including two in Orlando. Cooper’s Hawk has a wine club as well as a menu of cocktails, pasta, steak, burgers, salads and seafood.
“It’s another very strong, growing brand,” Gordon said. “It has what’s called geographical white space.”
Gordon’s review looked for restaurants that could be potential candidates for Darden but was not meant to indicate if those brands’ current owners have any willingness to sell.
Representatives for Bartaco owner L Catterton, Cooper’s Hawk, and Chuy’s did not respond to requests to comment.
Gordon emphasized Darden’s research abilities in making this decision.
“Darden has a sophisticated planning and research department that will study all of these brands,” Gordon said.