Investing.com – Darden Restaurants Inc (NYSE:) and Chuy’s Holdings Inc (NASDAQ:) have jointly announced their definitive agreement to merge, under which Darden will acquire all of the outstanding shares of Chuy’s.
The all-cash transaction, valued at approximately $605 million, will see Darden purchase shares for $37.50 each.
CHUY shares rose 47% in premarket trading Thursday.
Founded in Austin, Texas in 1982, Chuy’s is a Tex-Mex restaurant chain known for its authentic and freshly prepared dishes.
As of July 16, 2024, Chuy’s had 101 restaurants in 15 states, which generated revenues of more than $450 million in the past twelve months ending March 31, 2024.
Darden CEO Rick Cardenas expressed his excitement about the acquisition, saying, “Chuy’s is a differentiated brand within the full-service restaurant industry with strong performance and growth potential.” He also highlighted how the addition of Chuy’s aligns with Darden’s winning strategy and will diversify its portfolio into a new dining category.
Steven Hislop, chairman, CEO and president of Chuy’s, shared similar sentiments, saying, “We are excited about the opportunity to join the Darden family and its portfolio of respected brands. Darden shares many of our core values, especially our corporate philosophy and strong team member cultures. Together, we will accelerate our business goals and bring our authentic, made-from-scratch Tex-Mex to more guests and communities.”
Key aspects of the deal include a 40% premium to the 60-day volume-weighted average price, and an implied multiple of 10.3x Chuy’s Transaction Adjusted EBITDA for the twelve months ended March 31, 2024.
Darden expects pre-tax net synergies of approximately $15 million by the end of fiscal 2026. The transaction, which was unanimously approved by the boards of directors of both companies, is expected to close in Darden’s second fiscal quarter, subject to the usual closing conditions. .
“While we see the strategic rationale, we have a muted view of the transaction as the financial implications for DRI are relatively modest. We note CHUY’s periods of growth challenges historically, and view the multiple as somewhat high,” said analysts at BMO Capital Markets.
Elsewhere, Stephens analysts believe Chuy’s will “complement Darden’s diverse portfolio of casual concepts.” Although Chuy’s short-term EBITDA is only about 3% of DRI’s, the company sees the acquisition as a good fit due to the absence of Tex-Mex in the latter’s portfolio.
“We believe CHUY’s challenging macro environment and softer traffic trends created an attractive opportunity for DRI to acquire a unique concept at a reasonable multiple,” Stephens analysts added.
