Will Centerbridge Ruin P.F. Chang's?
Investors are happy this afternoon, and rightfully so, now that a private-equity firm is looking to take command of the popular Chinese restaurant chain. Shares are up nearly 30% as investors anticipate the $1.1 billion leveraged buyout.
In this scenario, it might seem that everybody wins. P.F. Chang's (NASDAQ: PFCB) could be sold at a 40% premium, providing its owners with a respectable return. Meanwhile, Centerbridge Partners could gain control of a semi-upscale dining enterprise.
P.F. Chang's execs are touting the deal as something that would provide the company with "greater flexibility" to meet its "long-term strategic plan of elevating our guest experience, enhancing our value proposition, growing traffic and improving the performance of our brands." At the same time, Centerbridge is praising the P.F. Chang's brand, as well as the company's "strong commitment to its customers, employees, and partners."
These are the common remarks of corporate execs who are involved in a buyout. But take special note of the words of Centerbridge's senior managing director, Jason Mozingo. "We look forward to working with management to lead the company through its next phase of growth and development," he said.
Next phase of growth and development, eh? Perhaps. But in my experience, when a quality restaurant chain is acquired (by either another corporation or a private-equity firm), the next phase is often the worse.
For a quick example, let's take a look at Baja Fresh. Wendy's (NASDAQ: WEN) acquired the growing quick-service restaurant chain for nearly $300 million in 2002. Wendy's ran the chain into the ground and then sold it in 2006 for roughly 1/10 the purchase price -- just $31 million.
While many would argue that Baja Fresh isn't real Mexican food and that it pales in comparison to its fast-growing competitor, Chipotle (NYSE: CMG), I hear similar arguments regarding P.F. Chang's.
Could this be the beginning of the end for the China bistro…?
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