On November 14, 2017, Buffalo Wild Wings (BWLD) stock rose 24.0% following reports that the company has received a takeover bid of $2.3 billion, or $150 per share, from Roark Capital Group, an American private equity.
The offer price was approximately 28.0% higher than Buffalo Wild Wings’ Monday closing stock price. However, it was lower than the company’s 52-week high of $175.10, which the company hit in December 2016. The bid was less than ten times the company’s EBITDA (earnings before interest, tax, depreciation, and amortization). In July 2017, Panera Bread was acquired by JAB, which had paid 18 times Panera’s EBITDA.
Marcato Capital Management, an activist investor, began buying Buffalo Wild Wings stock last year and is estimated to have bought the majority of its stake for between $140 and $150 per share. So, analysts are expecting Marcato to be a major hurdle for the deal, as it would receive lower-than-expected returns.
2017 was a tough year for Buffalo Wild Wings. During the period, the company struggled with its SSSG (same-store sales growth) and an increase in chicken wing prices, which put pressure on the company’s margins. So, going private could be beneficial for the company, as it provides an opportunity to adopt a long-term approach and make the necessary investments to attain sustainable earnings growth rather than worrying about quarterly earnings.
- BTIG analyst Peter Saleh expects Marcato to complicate the deal. However, he expects the lack of progress in the appointment of a new CEO to replace Sally Smith, who is set to retire by the end of this year, to compel Marcato to agree to the deal.
- Chris O’Cull of Stifel believes the hurdles the company faces to improve its SSSG (same-store sales growth) and its CEO issue will make Buffalo Wild Wings a willing seller.
- Wedbush has termed the deal as realistic and has raised its target price from $115 to $130.
By the end of November 14, 2017, Buffalo Wild Wings was trading at $145.35, which represents a fall of 5.9% since the beginning of 2017. During the same period, the Cheesecake Factory (CAKE), Texas Roadhouse (TXRH), and Brinker International (EAT) have returned -25.0%, 3.8%, and -32.5%, respectively.
Next, we’ll look at analysts’ target price and recommendations for Buffalo Wild Wings.