Wall Street doesn’t like restaurants, so restaurants leave Wall Street

Topgolf was sold at a 45% lower valuation than it was bought for in 2020. | Photo: Shutterstock.

Stop us if you’ve heard this before: One restaurant company put itself on the market and another company is being sold. 

Two weeks ago, Denny’s was sold to a group of investment firms, and Yum Brands put Pizza Hut on the market. And so, we wrote about the emergence of take-private deals.

And then this week we got more evidence. MTY Food Group, the collector of restaurant brands like Wetzel’s Pretzels, Cold Stone Creamery and Papa Murphy’s, decided to seek strategic alternatives after a generally tough year on the Canadian public markets. And then the golf equipment maker Callaway Brands found a buyer for its beleaguered Topgolf concept.

All this comes amid continued questions about the current and future state of the restaurant industry. Consumers have been cutting back on dining frequency. Those cutbacks have spread from fast-food restaurants to fast-casual restaurants. And Wall Street has been selling off stock, downshifting valuations in the process. 

The median restaurant stock is down 12% so far this year. By contrast, the S&P 500 is up 12%. 

Only three companies—Steak n Shake owner Biglari Holdings, on-the-market Noodles & Company and small-cap pizza chain operator Rave Restaurant Group—are beating the broader market. A fourth, Potbelly, was taken private. 

Only nine current publicly traded restaurant companies are even up so far this year, and one of them is the aforementioned Denny’s.

Nine companies have lost more than half their market cap this year, including four companies that have gone public since 2021, three of which are fast-casual brands, including Sweetgreen, which has lost more than 80% of its value.

This is the type of stuff that forces companies to rethink strategies. MTY, which is traded in Canada, has lost 23% of its value this year. It has acquired dozens of chains at relatively low prices, many of which had a history of challenges.

Those types of brand collectors need to be experts in turnarounds to work effectively, at least on the public markets, and those companies can be exposed during difficult times like this. We’ve written about Papa Murphy’s, its biggest holdings, that was a turnaround when MTY bought the chain, and remains a turnaround under MTY ownership.

It’s worth pointing out that another brand collector, Fat Brands, has lost more of its value this year than any other company but Sweetgreen.

In Topgolf’s case, Callaway Brands thought it found gold after it bought the chain in 2020. The pandemic led to a surge in business at such so-called eatertainment chains. It has since discovered that operating a restaurant chain isn’t so easy when a bunch of cash-rich Americans sick of staying at home start flocking to experiential concepts.

Callaway liked Topgolf so much that it renamed itself Topgolf Callaway Brands. It is now changing back, after deciding, much like Yum Brands with Pizza Hut and Jack in the Box with Del Taco, that it would be better off without their struggling restaurant chains. 

Leonard Green & Partners, the private-equity firm, is buying just 60% of Topgolf, which will be valued at $1.1 billion—45% lower than its valuation when Callaway bought the chain. Callaway’s stock has lost nearly two-thirds of its market cap since it bought Topgolf. 

We certainly expect other deals. Valuations have dropped so much that many chains have become more favorable targets for private equity and other investors who see them as undervalued, turnaround opportunities or cash generation machines. 

An improving industry would certainly change the equation, and that’s possible if consumer confidence improves and people start dining out again. We remain skeptical that will happen quickly, which probably means more take-private deals, and fewer IPOs.

Restaurant Business Editor-in-Chief Jonathan Maze is a longtime industry journalist who writes about restaurant finance, mergers and acquisitions and the economy, with a particular focus on quick-service restaurants.

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