Inspire Brands to Take Sonic Private in $2.3B Acquisition
Inspire Brands added another legacy brand to its multi-brand stable.
Inspire entered into a merger agreement with Sonic Corp. (NASDAQ: SONC). Under the terms of the deal, Inspire will acquire Sonic for $2.3 billion, or $43.50 per share in cash. That represents an 18.8 percent premium to where shares were trading prior to the announcement.
Inspire CEO Paul Brown said he was excited about the new project.
“We have tremendous respect for Sonic’s exceptional team of employees and franchise owners, who have built one of the industry’s most distinctive restaurant brands,” said Brown in a release. “We’re excited to build on Sonic’s momentum as we leverage our combined expertise and capabilities to better serve guests, further support team members and franchisees and drive long-term growth.”
Inspire Brands, the multi-brand operator founded under the Roark umbrella in February, now operates four of Roark’s 17 restaurant brands.
The power of being under the guidance of Roark is well recorded at Arby’s, and Sonic could see a similar trajectory under the massive umbrella of Roark. But it will take time.
One just has to look at Arby’s for a little preview of what might happen at Sonic. Roark bought a majority of the brand from Wendy’s in 2011, for $430 million. At that point, the brand was struggling. Same-store sales at its 3,500-plus locations dropped 9.2 percent in 2010. While other competitors were bouncing back from the Great Recession, Arby’s wasn’t. McDonald’s grew sales by 5 percent and Arby’s parent Wendy’s grew by 5.1 percent. Arby’s, however, just wasn’t sexy anymore.
When it was sold, Roark spent a lot of time quietly finding what made Arby’s great. The thesis—it seems—was meat, meat and more meat. Instead of the flashy, bizarre, viral promotions and gut-busting LTOs, Roark focused on menu innovation around that meaty differentiator.
And it worked. When Wendy’s sold its final stake in Arby’s this year, it gave the restaurant world a glimpse behind the Roark curtain. The sale valued Inspire Brands at $3.6 billion. Subtracting the roughly $2.2 billion spent on the recently acquired Buffalo Wild Wings and Rusty Taco brands, that means Arby’s was valued at $1.4 billion. Essentially, Roark’s work added $1 billion in value even after shuttering hundreds of locations. That’s 225.5 percent growth in seven years and a private equity daydream.
Sonic is in a similar situation. It’s lagging the strongest QSR peers on the market. It’s missed earnings expectations for the last nine earnings reports and the more than 3,450 locations are struggling to maintain traffic along with everyone else.
But the brand has a lot of differentiators. The drive-in service model is unique, as is the high-margin beverage platform, and like Arby’s it’s still a household name with a lot of brand affection, if not loyalty. And the restaurants still generate cash. According to the company’s 2018 FDD, the average Sonic still generates $1.2 million in annual gross sales.
But get ready for some quiet time, and if Inspire treats Sonic like Roark treated Arby’s, expect some quiet machinations ahead of any Sonic boom.
Guggenheim Securities, LLC is serving as financial advisor to Sonic and Shearman & Sterling LLP is serving as its legal counsel. White & Case LLP is serving as legal counsel to Inspire.