Darden Restaurants Acquires Cheddar's for $780 Million

Darden Restaurants, Inc. announced that it agreed to acquire Cheddar's Scratch Kitchen (Cheddar's) for $780 million in an all-cash transaction from its stockholders including private equity firms L Catterton and Oak Investment Partners. Cheddar's will add to Darden's portfolio of differentiated brands which currently includes Olive Garden, LongHorn Steakhouse, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V's.
 
"Cheddar's is an undisputed casual dining value leader with broad appeal and strong average restaurant volumes," said Darden CEO Gene Lee. "Cheddar's is a great fit in the Darden portfolio because it complements our existing brands. This addition will also enable Darden to further strengthen two of our most important competitive advantages: our significant scale and our extensive data and insights."
 
Cheddar's was founded in 1979 in Arlington, Texas and features high-quality, made-from-scratch food at compelling prices in a polished yet warm atmosphere. Currently, Cheddar's has 165 locations, including 140 owned and 25 franchised, across 28 states with significant growth opportunities in new and existing markets and average annual restaurant volumes of $4.4 million.
 
Transaction Highlights
 

• Darden agreed to acquire Cheddar's for $780 million, subject to customary adjustments.
• Net of certain tax benefits estimated at approximately $30 million, the purchase price represents a 10.4x multiple of trailing twelve month adjusted EBITDA ending December 2016.
• Darden expects between $20 and $25 million of annualized pre-tax run rate synergies by fiscal 2019.
• Total acquisition and integration-related expenses are expected to be approximately $25 to $35 million.
• The transaction is expected to be accretive to Darden's diluted net earnings per share in fiscal 2018 by approximately 12 cents, excluding any acquisition and integration-related expenses.
• Darden will also pay $10 million for certain Cheddar's transaction-related tax attributes and reimburse its equityholders for pre-closing capital expenditures on new restaurants under development.
• Ian Baines, CEO of Cheddar's, will remain President of Cheddar's and report to Gene Lee, Darden President and CEO.
• The completion of the transaction is expected to occur in Darden's fiscal 2017 fourth quarter and is subject to customary closing conditions.

 

"We are excited about the opportunity to be a part of Darden," said Ian Baines, CEO, Cheddar's. "Our operating philosophy and values are similar and we believe this transaction provides a great opportunity for our team members to continue to grow and develop in their careers. Additionally, Darden's expertise will enable us to further capitalize on our growth potential." 
 
BofA Merrill Lynch is acting as exclusive financial advisor and Hunton & Williams LLP is acting as legal advisor to Darden. Morgan Stanley & Co. LLC is acting as exclusive financial advisor to Cheddar's and DLA Piper is acting as legal advisor to L Catterton, Oak Investment Partners and Cheddar's.