==Chuy's (CHUY) to be acquired by Darden Restaurants (DRI)

 

Darden Restaurants expands into Mexican category with Chuy's acquisition 

• Darden Restaurants (DRI -1.1%) is back on the M&A hunt. Just over a year since its closed on its acquisition of Ruth's Chris Steak House, the company announced last night it will acquire Chuy's (CHUY +48%) for $37.50 per share, a Tex-Mex-inspired full-service casual dining restaurant chain. It's an all-cash transaction with an enterprise value of approximately $605 mln.
• DRI sees Chuy's as complementing its existing portfolio, which includes Olive Garden, LongHorn Steakhouse, Yard House, Ruth's Chris, Cheddar's, The Capital Grille, Seasons 52, Eddie V's and Bahama Breeze. What's notable about Chuy's is that it's Darden's first foray into the popular Mexican dining category.
• Darden describes Mexican as one of the fastest growing dining categories, and Chuy's is the largest full-service operator with strong unit economics. Chuy's currently has 101 restaurants, all of which are company-owned, so no franchisees. Average restaurant sales at Chuy's are $4.5 mln, with an average check of $19 and an impressive restaurant level EBITDA margin of almost 20%. DRI expects to use its scale to drive further cost benefits.
• While CHUY, not surprisingly, is sharply higher on the news, DRI is trading modestly lower. Perhaps investors are worried that Darden is biting off more than it can "Chuy", so soon after it just closed on Ruth's Chris in June 2023. Also, CHUY's shares have been trending lower over the past year as results have not been great. Investors may be balking at DRI paying a huge 48% premium over CHUY's $25.27 closing price yesterday, and all in cash.