The restaurant industry has to contend with a new giant.
The parent of Arby’s, Inspire Brands Inc., announced on Tuesday that it had agreed to acquire Sonic Corp. in a deal valued at about $2.3 billion, adding more than 3,600 locations of the burger chain to a portfolio that also includes Buffalo Wild Wings and Rusty Taco.
The deal would give Inspire, controlled by private equity firm Roark Capital, a total of about 8,200 locations and make it one of the 10 largest restaurant companies in the U.S. by that measure.
That scale could help Sonic compete in an industry where it’s been squeezed by tough competition from bigger rivals including McDonald’s Corp., Burger King and Yum! Brands Inc., which operates the KFC, Taco Bell and Pizza Hut chains. The larger companies have the advantage of using their scale to get supplies at a better price, said Michael Halen, an analyst at Bloomberg Intelligence.
“The value wars are still going strong right now,” said Halen, referring to Inspire’s entry into the battle for burger diners. “McDonald’s and Burger King are really the source of Sonic’s troubles.”
Inspire will continue to operate Sonic as an independent brand, according to a statement Tuesday. The deal, unanimously approved by Sonic’s board, represents a 19 percent per-share premium to Sonic’s closing price on Monday, the company said. Inspire will pay $1.57 billion for Sonic’s equity and assume about $700 million of debt, according to Bloomberg calculations.
The deal would significantly expand Inspire’s U.S. footprint, and with more than 8,000 locations, it would be larger than industry stalwart Wendy’s. Still, the company will need to go on the hunt for acquisitions if it wants to pass some of its other competitors. As of last year, Yum! Brands had more than 18,000 domestic locations, according to industry researcher Technomic. Burger King is controlled by Restaurant Brands International Inc., which also operates Tim Hortons and Popeyes. Overall, the company has roughly 10,100 U.S. stores.
