E Implication From Zoe’s (ZOES) Acquisition

Several observations are apparent from today’s acquisition and going-private transaction involving Zoe’s (ZOES), that gives us signals what is going on in the restaurant space.

Zoe’s acquisition price multiple was healthy, at about 14X 2017 (historical) EBITDA.  Investors, debt and top industry talent can be found for brands with potential. Money is not so much a problem right now…but finding and keeping talent is vital. Former Panera CEO Ron Shaich was interested. We imagined that Ron Shaich would not be idle long, and sure enough, he emerged here as significant investor and Chairman of the new combined Cava/Zoes entity.

Like many fast casual post 2012 IPO operators, it is challenging (but not impossible) to expand profitably in the United States. Competition, rent and getting human capital are vexing.  Zoe’s is headed to a better place…where it can reposition as needed. It was clear from their last call that heavy duty actions was required. Being a publicly traded restaurant under transition is a unforgiving place to be, as there is no patience. Kudos to the Zoe’s Board for being broad and mature enough to make the right decision for the brand. Going forward, we’ll lose visibility of Zoe’s numbers but we will be able to see its transformation and progress nonetheless.

Finally, this deal marks continuation of a trend where smaller restaurant brands cluster together, for synergies and support. Some public brands have done so just they can appear to be “bigger” and gain more visibility but others are private and have done so for transition and rebuilding. Restaurant conventional wisdom until the mid 2010s was that really only Darden (DRI) was able to successfully manage a stable of brands under one holding company roof.