Just recently, we discussed the very real possibility that Dunkin' Brands (NASDAQ:DNKN) could be bought out by Inspire Brands, a privately-held company that owns several other major fast-casual dining operations, including Arby's, Sonic, Buffalo Wild Wings and more. The deal is massive, and so is the potential shakeup it represents to the dining industry.
That's One Serious Donut
Inspire Brands' deal to buy Dunkin' Brands called for Inspire to write a check for $11.3 billion, as the deal was an all-cash deal. Since the deal also included debt payments, the whole $11.3 billion won't be going to Dunkin'. Reports noted that the non-debt portion of the deal came to $8.76 billion, which is still a substantial check to write.
Regardless of the circumstances, at the end of the day, Inspire Brands' offer to buy Dunkin' Brands represents a purchase price of $106.50 per share. That's almost 20% over what the stock closed on on October 23, and given that the stock was up around 6% in pre-market trading, the market has pretty much baked in that price jump.
Shifting Alliances, Shaky Prospects
The analyst perspective, meanwhile, has been brisk over the last week or so since news of the deal first emerged, according to our latest research. Just today, three analysts—Credit Suisse, Piper Sandler, and Robert W. Baird—lowered their appraisals of the company from “outperform” (“overweight” in Piper Sandler's case) to “neutral.” This does make a note of sense, as being part of Inspire Brands will effectively take the company private.
Price targets for the company also got a boost over the last week. Both Credit Suisse and Wells Fargo & Company went right for the throat, going to $106.50 immediately. Robert W. Baird wasn't far behind at $106. Other targets, meanwhile, were less optimistic that the deal would bump the stock price immediately to Inspire Brands' valuation, with BMO Capital Markets going to $80, Wedbush going to $102, and KeyCorp going to $97 since October 23.
Overall, the company now holds a “hold” consensus value, as opinions have shifted almost completely back to where they were six months ago. Back then, the company had 16 “hold” ratings and seven “buy.” Today, the company has 17 “hold” ratings and six “buy.” Just a month ago, however, buying in was a much more attractive proposition, with 13 “hold” ratings balancing almost evenly against 11 “buy” ratings. Given that a share of Dunkin' Brands was $84.49 a month ago, however, such a stance makes sense, and would have paid off pretty handily to whoever bought in a month ago.
A Future of Delicious Possibilities
Inspire Brands' move to buy Dunkin' Brands—which will also come with ice cream giant Baskin-Robbins operating as a separate brand—gives Inspire a lot of help in the field. Looking at the current slate of Inspire Brands, there's one gaping hole in the operation, and most of us call that hole “breakfast.” While Inspire has lunch and dinner nicely covered with chicken wings, roast beef sandwiches, burgers and milkshakes, and beyond, Inspire's coverage of breakfast is a fairly limited matter. With Dunkin' in the stable, Inspire gets a serious boost therein and now has a presence in pretty much every meal-related daypart there is.
Better yet, Inspire also gets a legion of loyal Dunkin' customers it can attempt to cross-sell; there are, at last report, over 15 million loyalty members involved in Dunkin's operations—which probably includes Baskin-Robbins figures as well—and that's over 15 million new potential cross-selling targets.
That doesn't even begin to factor in the potential for cross-selling within Inspire Brands outlets; consider the possibilities of a Baskin-Robbins stand in every Arby's location, or Sonic milkshakes made with the same ice cream served up therein. Consider a Buffalo Wild Wings featuring a “Luther” style hamburger made with Dunkin' Donuts donuts for buns. While certainly, none of these may ever actually see the light of day, they represent exciting new opportunities for potential growth. Buying into Inspire Brands may not be possible given its privately-held nature, but it's a safe bet this company is going to be one to watch—especially for its impact on other firms in the restaurant sector—going forward.
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