Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

And that's the way the chicken wing fries.

Buffalo Wild Wings Inc. on Tuesday agreed to sell itself to private equity firm Roark Capital Group for $157 a share, or $2.9 billion including net debt. The purchase price is sweetened from Roark's reported initial bid of about $150 a share and represents a 34 percent premium to the company's share price before news of a potential takeover. But Buffalo Wild Wings traded at a higher price just a few months ago, back when investors were still optimistic about activist investor Marcato Capital Management's ability to turn the business around. Marcato won a proxy fight at Buffalo Wild Wings in June and successfully pushed for CEO Sally Smith's resignation.

Wild Ride
After a year's worth of bluster and battles, analysts estimate Buffalo Wild Wings is selling for only about a 10 percent premium to activist Marcato's cost basis
Source: Bloomberg

I commented earlier that Buffalo Wild Wings would be an interesting test case for activists' commitment to private equity-like turnarounds based on real operational improvements. Marcato talked a big game about overhauling Buffalo Wild Wings' capital allocation plan, lifting margins and increasing the percentage of restaurants owned by franchisees. Selling out to a private equity firm at a halfway decent price just six months later was the easier path, and the activist investor took it. The only mention of Marcato in the deal press release is a single line, noting certain funds advised by it have agreed to back the deal.

Clipped Wings
Buffalo Wild Wings' sales at locations open a year have shrunk as the restaurant industry contends with more competition and less interest in eating-out
Source: Bloomberg

And honestly, Marcato's proposals for revamping Buffalo Wild Wings will be easier to execute away from the public market. Roark has experience in operational rebounds and highly-franchised restaurant brands, including at its Arby's chain which will oversee the Buffalo Wild Wings subsidiary. To turn down this offer you had to believe Buffalo Wild Wings could do better on its own, and it's not clear that anyone did anymore, including Marcato. Before news of Roark's interest emerged, a handful of analysts were optimistic Buffalo Wild Wings could get to a share price of $150 or more over the next year on its own, but the group on average was expecting something more like $130.

Take It or Leave It
Roark's bid may be as good as it gets for Buffalo Wild Wings
Source: Bloomberg
Note: Analysts price targets are as of Nov. 13, the day before Roark's interest was reported.

There's been some speculation that another bidder could emerge for Buffalo Wild Wings. Never say never, but it seems like this is as good as it's going to get. The trailing 12-month Ebitda multiple implied by Roark's offer is close to 12 -- well below the valuations commanded by the likes of Popeyes Louisiana Kitchen Inc. or Panera Bread Co. earlier this year. That's for a reason, though. Those companies had better growth prospects and neither was as much of a fixer-upper investment. 

Buffalo Wild Wings seems fully cooked. 

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

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Daniel Moss at dmoss@bloomberg.net