Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Could the owner of Krispy Kreme, Peet's Coffee and Panera Bread be preparing to add Dunkin' Donuts to its stable? 

Speculation that JAB Holding Co. could snap up Dunkin' Brands Group Inc. sent the coffee-and-doughnut chain's stock surging 8 percent higher on Monday, approaching the record it set in June. That would make it an expensive bite for any buyer.

True, Luxembourg-based JAB hasn't been very restrained in its three most recent deals worth a collective $23 billion: Its purchases of Panera Bread.Krispy Kreme and Keurig Green Mountain -- all of which have closed in the past 19 months -- have been at splashy multiples. But an acquisition of Dunkin' would be even pricier, at least on an enterprise value-to-revenue basis. 

Pricey Purchase
A Dunkin' Brands buyout wouldn't come cheap. Here's how it would stack up against other recent JAB acquisitions:
Source: Bloomberg
*Indicates trailing 12-month figures ^Applies a roughly 15 percent premium to Dunkin's stock, which is already trading above the average analyst's 12-month price target

That doesn't mean a deal is out of the question. JAB has made a strategic shift in stepping back from its luxury holdings to focus on consolidating the coffee world. Among its brands are Stumptown Coffee Roasters and Caribou Coffee, and its pursuit of the breakfast market extends to bagels with its Einstein Bros. brand. Buying Dunkin', which claims to be the top seller of doughnuts, bagels and both hot and iced drip-coffee, would give JAB a significantly bigger platform to compete against the industry's incumbent leader Starbucks Corp. 

Go West
Dunkin', which is concentrated in the Eastern U.S., reckons it can double its U.S. footprint over the long term
Source: Company presentation

Without a deal, Dunkin' looks stretched: The company's 2017 revenue growth is poised to fall below 3 percent for only the second time since 2009, not helped by the fact that its ice cream chain Baskin-Robbins just posted its fifth-straight quarter of negative U.S. same store sales.

As it reported third-quarter earnings last week, the Canton, Massachusetts-based company surprised investors by announcing plans to spend $100 million in the next two years on digital innovations and improved store design. It's likely that constantly evolving consumer preferences around digital ordering and loyalty programs will require Dunkin' to continue spending on such innovation over time, which could eat into profits.

To be sure, these costs could easily be absorbed by deep-pocketed JAB, or even avoided in the case that it can share the technology already used by its array of brands from Panera to Peet's Coffee. Still, this assumes it's hungry for Dunkin' in the first place. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net