CHICAGO After the biggest surge in takeovers of restaurant and coffee companies since the last recession, N.C.-based Krispy Kreme Doughnuts Inc. and California-based Jamba Inc. could be next on the menu.
Acquisitions of U.S. restaurant, tea and coffee companies from Peets Coffee & Tea Inc. to Teavana Holdings Inc. reached $6.1 billion last year, the highest level since 2008, according to data compiled by Bloomberg. Deals are on the rise as sales growth at coffee and snack shops is forecast to outpace that of fast-food chains through 2017, data from IBISWorld Inc. show.
Since Joh. A. Benckiser Group announced plans Dec. 17 to buy Caribou Coffee Co., Krispy Kreme shares have climbed 21 percent to the highest in more than five years as Jamba rose 19 percent.
Krispy Kreme, which introduced a new coffee lineup in 2011, and Jamba, the smoothie maker projected to post its first profit since 2005 this year, may be targeted for their well-known brand names and the chance to expand into grocery and mass retail stores, analysts at B. Riley & Co. and Pacific Management Consulting Group said.
Even after Krispy Kreme shares climbed 43 percent in a year, the Winston-Salem doughnut seller still trades at a lower earnings multiple than 97 percent of U.S. restaurants valued at more than $100 million, according to Bloomberg data.
Theyre iconic brands, and it takes forever to build that brand equity, said Conrad Lyon, an analyst at Los Angeles-based B. Riley. To be able to write a check and add that to your portfolio is probably pretty attractive.
Krispy Kreme and Jamba declined to comment on takeover speculation.
Sales at coffee, hot-beverage and doughnut chains are outpacing fast-food revenue as on-the-go consumers shift to snacks instead of full restaurant meals, according to June and July reports from IBISWorld. Coffee and snack shop sales are forecast to increase 4 percent annually to $33.9 billion in 2017, compared with growth of 1.9 percent a year for fast-food chains, the Santa Monica, Calif.-based researcher said.
Acquirers may be interested in a coffee or beverage chain with a brand that is strong in the consumer mind, Lyon said. The profit margin for selling beverages is higher than for food, he said.
Two brands out there that are largely the strongest in their category are Krispy Kreme for doughnuts and Jamba for smoothies, Lyon said.
Jamba, operator of the Jamba Juice chain, sells hummus-and-cheese wraps, flatbreads and frozen yogurt alongside its signature fruit smoothies. The juice maker, founded in 1990, also sells smoothie kits and 90-calorie energy drinks at Wal-Mart Stores and Target locations in the United States.
Jamba juice could be pick-up-able, said John Gordon, a San Diego-based principal at restaurant adviser Pacific Management Consulting, with clients including Dunkin Donuts franchisees. It would be relatively cheap from a strategic acquisition standpoint. They already have a very large store presence. Its already a brand name.
Krispy Kreme, founded in 1937, may lure bids from other eateries looking to boost morning food and drink sales with its cultlike following, Lyon said.
Wendys Co. may look at Krispy Kreme as a way to boost its breakfast sales, Lyon said. The Dublin, Ohio-based chain, which sells chicken biscuits and home-style potatoes at some locations, has struggled to compete with McDonalds Corp.s morning menu.
Bob Bertini, a spokesman for Wendys, said the company doesnt comment on speculation.
Krispy Kreme returned to profit in fiscal 2011 after six straight years of losses, according to Bloomberg data. Earnings for the third quarter topped analysts estimates, and the company said that in the fiscal year ending Jan. 31 it will earn more than previously thought. Krispy Kreme has a net cash position of $24 million, the data show.
Its still a very recognized brand, said Gary Bradshaw, a Dallas-based money manager at Hodges Capital Management Inc., which oversees about $800 million, including Krispy Kreme shares. The company has returned to profitability. They really cleaned up their balance sheet. It could certainly be bought.
Still, the iconic doughnuts nutritional drawbacks may give a possible buyer pause, said Jason Moser, an Alexandria, Va.-based analyst at the Motley Fool. A glazed doughnut with creme filling has 350 calories, according to the companys website. Thats why Krispy Kreme has recently introduced oatmeal and fruit juice to its menu.
Krispy Kreme shares closed Monday at $10.92, down 23 cents.
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