With small restaurant M&A swirling about and an activist investor hovering, it may not be long before Sandwich chain PotBelly Corp. (PBPB)  finds itself on the block.

Cleveland-based activist investor Ancora Advisors LLC on June 22 sent a letter to Potbelly urging the sandwich maker to "immediately" change its strategy or explore the sale of the company.

Ancora Advisors outlined steps it wants Potbelly to take to improve its share price, including franchising more of its restaurants. It said it should explore a sale if it does not go through with these proposed changes. Ancora also lamented that after shares doubled on Potbelly's debut to nearly $31 in October 2013, the stock has steadily declined.

Potbelly will announce its third-quarter earnings in November while director nominations for the 2018 annual meeting are due between Jan. 11 and Feb. 10, so the company has some time, though the 4% stakeholder may not want to wait that long.

Ancora CEO Fred DiSanto is pushing for Potbelly's board to add a shareholder-appointed director to assist in the chain's CEO search following last month's announcement that the restaurant chain's current CEO, Aylwin Lewis, will leave in August.

"We would be happy to assist the board in identifying acceptable board candidates, and we reserve the right to potentially pursue board representation at next year's annual meeting if necessary," DiSanto said.

Supporting the thought that a sale could come fruition is the fact that the niche restaurant space has seen a recent uptick in M&A. 

Bravo Brio Restaurant Group, Inc. (BBRG) recently announced it would explore a sale. Meanwhile, Bob Evans Farms Inc. (BOBE) announced in January that it would sell its restaurant group to Golden Gate Capital for $565 million.

"Recent industry activity has been in-line with this theme further suggesting that M&A activity may be in the process of returning to the space," wrote Nicole Miller Regan of Piper Jaffray in a note back in February just after the Bob Evans deal was announced.

It is worth noting that both Bravo and Bob Evans both had insurgents knocking on their door, as well. 

Potbelly is currently trading at about 7.56 times Ebitda according to FactSet, while restaurant industry multiples peg an average takeout at about 8 times to 9 times Ebitda, and at the high end could net 11 time to 12 times Ebitda. The firm is expected to report its next quarterly earnings results on Tuesday, Aug. 1.

Potbelly shares are down about 11% year-to-date to $12.52 per share. The company has a market cap of about $320 million.

Editors' pick: Originally published July 14.

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