EAT - Darden's deal for Ruth's Chris chain shakes up the restaurant sector

2023-05-04 06:30:00 ET

Darden Restaurants ( DRI ) shook up the restaurant sector on Wednesday by announcing its first M&A action in six years with the acquisition of Ruth's Hospitality Group ( NASDAQ: RUTH ) for $21.50 per share in cash.

Cowen analyst Andrew Charles said the $715M equity value deal represents 9.2X consensus 2023 EV/EBITDA estimate, which is noted to be a premium to the 7.4X average multiple for small cap full service peers such as BJ Restaurants ( BJRI ), Bloomin' Brands ( BLMN ), Brinker International ( EAT ), Cracker Barrel ( CBRL ), Cheesecake Factory ( CAKE ), Chuy's Holdings ( CHUY ), Red Robin Gourmet Burgers ( RRGB ), and One Group Hospitality ( STKS ).

The premium is big enough that Charles thinks another bid from a financial buyer is unlikely. Shares of Ruth ( RUTH ) closed at $21.48 on Wednesday, just $0.02 off the deal price.

Ruth's Hospitality is noted to fit Darden's ( DRI ) loose acquisition criteria for a full service brand not in need of turnaround and with the ability to make a difference in the portfolio over the next 5 years. Cowen likes that Ruth's increases Darden's exposure to the higher income consumer and gives it a small international presence with 22 locations across 9 countries. A surprise with deal is the willingness of Darden to increase exposure to the high-end steakhouse chain given the company's ownership of 61 Capital Grill locations and 29 Eddie V's.

More on Darden Restaurants:

• See more details about the Ruth's deal
• Darden Restaurants: To See Normalized EPS Growth In The Near Term
• Read more breakdowns on Darden Restaurants from Seeking Alpha analysts
• View the relative strength index and moving averages
• See the financial and valuation comparisons to sector peers
• Dig into the Seeking Alpha Quant Rating

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