Private investors buying restaurant companies as industry improves

Private investors have developed quite an appetite for restaurant companies. In the past couple of weeks alone, two popular restaurant chains have been acquired by partnerships.

P.F. Chang's China Bistro was purchased by Centerbridge Partners in a deal valued at $1.1 billion, and earlier this week, Benihana Inc. agreed to be purchased by a private equity group, Angelo, Gordon & Co., for $296 million.

These deals come at a time when the restaurant industry is benefiting from a rebound in consumer spending, fueled by a steady improvement in employment conditions. The Restaurant Performance Index compiled by the National Restaurant Association found a majority of operators reported higher same-store sales and customer traffic at the end of the first quarter.

For six months in a row, restaurant operators have reported higher expectations for staffing levels and also plan to increase capital spending in the months ahead.

“We expect the nation's nearly 1 million restaurants to post sales of $632 billion this year," said Dawn Sweeney, president and CEO of the National Restaurant Association. "Combine that with the fact that restaurant job growth is expected to outpace the overall economy for 13 consecutive years, and it's clear that the restaurant industry is once again proving to be a significant economic stimulant and strong engine for job growth.”

Of course, visits to restaurants of all types are considered discretionary spending and at the mercy of how consumers feel about their personal finances. Only one in five Americans reported lower net worth than a year ago, according to bankrate.com, and consumer attitudes have improved in six of the past seven months.

Yet at the same time, 20 percent of consumers say they are cutting back on restaurant visits to compensate for rising gasoline prices.

But business remains brisk at chains like Jack in the Box. The San Diego-based operator of more than 2,200 fast-food outlets in 20 states reported last week that sales in the previous quarter rose 5.6 percent as a result of traffic growth and an increase in average check, two signs of a more optimistic consumer.

“We believe these results have been largely driven by the investments we have made to enhance the entire guest experience at the Jack in the Box brand, including the substantial completion of our system-wide reimaging program in January,” CEO Linda Lang said.

An almost identical comment came from Lang's counterpart at McDonald's, the largest in the quick casual dining sector.

“Amidst a challenging global economic environment, McDonald's ongoing commitment to optimizing the menu, modernizing the restaurant experience and broadening accessibility will enable us to continue to satisfy the evolving needs of our customers,” CEO Jim Skinner said.

While it's unlikely Jack in the Box or McDonald's will be targets for private-sector buyouts, they have fared well on Wall Street. Jack in the Box shares closed Tuesday at $24.19, slightly below a multi-year high hit recently.

And, McDonald's, which has pulled back during the recent market correction, closed Tuesday at $91.34. The shares were trading in the mid-$40 range when the markets bottomed in March 2008.