As Darden Restaurants (DRI - Get Report) , the operator of the Olive Garden and LongHorn Steakhouse restaurant chains, explores options to expand acquisition activity once again, a familiar target may come back into the fold.
Analysts have offered up BJ's Restaurants (BJRI - Get Report) , a Huntington Beach, Calif.-based operator of 186 casual dining locations selling predominantly deep dish pizzas, as a possible buy for the Orlando restaurant operator.
Darden could be on the hunt for a deal and a growth concept such as BJ's, which has locations in 24 states including in New York, Arizona and Virginia and Ebitda of about $128 million, could be just the boost Darden needs to kickstart growth, KeyBanc Capital Markets' Chris O'Cull and David Carlson said in a research note Monday.
But is Darden, a company that has battled activist investors and secular decline in the casual dining space over the past three years, above a BJ's takeover that could cost the company as much as $1.05 billion in equity alone.
Darden's scale and reach could afford the company the ability to "invest in and enhance the competitiveness of concept-level functions," KeyBanc said.
The Darden and BJ's have already explored a partnership roughly five to six years ago, said Maxim Group analyst Stephen Anderson, and its unlikely the two will rekindle talks and reopen the possibility.
Before acquiring sports bar chain Yard House USA Inc. in 2012 for $585 million in cash, Darden was rumored to be considering a play for BJs, Anderson said. Both BJ's and Darden declined to comment for this article.
"The trouble with (acquiring) BJ's is it would be going down a category (for Darden)," Anderson said explaining that BJ's is "not too far above" Applebee's Neighborhood Grill & Bar, and therefore would not only be a step down from Darden's fine dining group.
"It (would give) them a little bit of growth but I'm not sure it's a concept that they would want to play at this point," he said.
Anderson suggests that Darden could go after a more upscale restaurant chain operator, either private or public, that would add to its fine dining group. Anderson declined to suggest any examples.
Bravo Brio Restaurants Group (BBRG) , operator of Bravo! Cucina Italiana, Bon Vie Bistro and other chains could possibly be up for grabs as it's currently facing a director-election proxy battle with investment fund TAC Capital LLC. Brinker International (EAT - Get Report) , the owner of Chili's and Maggiano's Little Italy restaurant chains, has also been identified as a candidate to sell.
After two big deals to build its presence--2007's $1.4 billion purchase of LongHorn's former parent Rare Hospitality Int.'l. and 2012's acquisition of Yard House--Darden has slowed down dealmaking.
In October of 2014, Jeff Smith's activist fund Starboard Value LP won a proxy fight to replace Darden's 12-person board after urging the company for months to improve its operations and separate its real estate business through a merger or publicly-traded real estate investment trust spinoff. In June of 2015, Darden separated the majority of its owned real estate into a new publicly-traded REIT as part of a strategic plan under Starboard. Still, Darden has not been its acquisitive self over the last couple of years. Smith no longer sits on the board though some of his appointees remain including restaurant veteran Bradley D. Blum.
If Darden wants to hit its goal of increasing sales growth by 2% to 3% in the next few years, an acquisition may be the only way. Last year, Darden struggled in this area but a possible tie up with BJ's could help, according to O'Cull and Carlson.
BJ's is known for its deep-dish pizza, craft beers and appetizers under restaurants including BJ's Restaurant & Brewery and BJ's Pizza & Grill.