Restaurants Poised for Surge in M&A
We may see a once-in-a-generation opportunity for well-capitalized entities to take advantage of historically low-price points in 2021 and 2022.
Very few businesses have been hit harder by the pandemic than restaurants. Despite this carnage, private equity firm Plutos Sama Holdings sees accelerated merger-and-acquisition activity in the industry after the pandemic subsidies.
Plutos Sama Holdings says that more than 110,000 restaurants in the US were forced to temporarily or permanently close in 2020. Additionally, it says sales plummeted to a staggering $240 billion below pre-pandemic forecasts.
But Plutos Sama Holdings thinks the restaurant industry may be on the cusp of an inflection point. “This could be a potentially once-in-a-generation opportunity for well-capitalized entities to take advantage of historically low price points in 2021 and 2022, to generate ROI in 2023 to 2025,” said a spokesman for the private equity firm.
Others see a strong recovery coming for some of the sectors hit hardest by COVID, including travel, fitness and restaurants. “Post-vaccine, we will have a boomerang recovery in many CRE sectors as all of us rush to see each other in-person again, starting now,” Camille Renshaw, CEO and co-founder of B+E Net Lease, tells GlobeSt.com.
Renshaw predicts that many smaller operators (one to three units) won’t have the equity or scale to recover from the pandemic. However, the story will be different for their larger competitors.
“Mid- to large-sized operators will restructure, choose new partners, source necessary equity and start fresh initiatives,” Renshaw says. “Q3 and Q4 will see a massive surge in capital expended on the restaurant segment by consumers—and M&A activity will spike in tandem.”
To be in the best position to compete after the pandemic, restaurants will need a robust digital presence, efficient delivery options, flexible menu offerings that reduce the risk of supply chain instability and a reimagined dining experience that enables physical distancing, according to Plutos Sama Holdings. Also, it will be critical for chains to provide a positive consumer experience.
In 2021, there could be an opportunity to take stock of the chains that are poised to thrive in the post-pandemic world and to determine which ones will be the most coveted and profitable M&A targets.
“We have never experienced anything quite like this before,” says the Plutos Sama Holdings spokesperson. What happens in the next 12 to 24 months is going to shape the sector for many years to come.”