If International House of Pancakes and Applebee's owner DineEquity Inc. (DIN) does decide to make an acquisition, it won't involve a chain that is similar to what it already owns, according to industry bankers.
That sentiment undercuts a Bloomberg report that Glendale, Calif.-based DineEquity may have an interest in First Watch Restaurants Inc. of Bradenton, Fla., which is in the same breakfast space as iHop.
First Watch, owned by Los Angeles PE firm Freeman Spogli & Co. since December 2011, operates around 120 restaurants in 16 states and has plans to eventually open restaurants all across the U.S.
DineEquity CEO Julia Stewart made it clear during the company's Oct. 28 earnings call that she isn't interested in any potential targets that will compete against the company's two core brands.
Industry watchers believe DineEquity should look for acquisitions in the fast-casual pizza space — more specifically, a chain that allows customers to build their own pizzas.
While pizza is one of the most competitive restaurant markets, it's also now one of the fastest-growing.
Industry sources pointed to privately held pizza chains such as Pasadena, Calif.-based Blaze Pizza LLC; Uncle Maddio's Pizza Joint, which is owned by Integrity Brands LLC; and Pieology, which is owned by Pizza Investment Entrepreneurs LLC. All three chains allow customers to build their own pizza.
Blaze operates 70 restaurants, several of which are in California. The company has been growing in the Midwest and East Coast and expects to have more tahn 100 restaurants by year's end.
Uncle Maddio's, based in Atlanta, has 25 restaurants mostly in the South and Southeast and is planning to open at least a dozen more by year's end.
Rancho Santa Margarita, Calif.-based Pielogy owns 37 restaurants in seven states. The chain is expecting to open 50 new restaurants by year's end.
Officials at Blaze, Pielogy and Uncle Maddio's did not return calls seeking comment.
"We believe that our scalable shared services infrastructure can accommodate a smaller concept to drive long-term shareholder value," Stewart said during the Oct. 28 earnings call.
But she also cautioned that DineEquity has no timeframe for make a deal and is in no rush to do one.
DineEquity did not return calls on Tuesday.
DineEquity's stock finished at $97.30 on Tuesday, down 0.03%. giving the company a market capitalization of near $1.84 billion.