SA Asks: Which restaurant chains could be takeover targets?

Papa John’s (NASDAQ:PZZA) shares jumped as much as 15% on Wednesday amid reports that Apollo Management (APO) and a Qatari investment fund had made a potentially lucrative bid for the pizza chain.

We asked Seeking Alpha analysts Dr. Christopher Davis of Quad 7 and Pedro Goulart which restaurant chains could also be takeover targets.

Dr. Christopher Davis: The restaurant space is highly competitive with pretty thin margins and facing pressure from inflation, tariffs, and consumer confidence that has been shaky at best. This actually sets up a good environment for M&A in the space, particularly where there are beaten down shares/company valuations. Papa John’s (NASDAQ:PZZA) had long been rumored to be a target. We think there are others that also could be targeted, but acknowledge this is speculation.

We have long argued that Cava Group (NYSE:CAVA) would fit well with Chipotle (NYSE:CMG), just in terms of relatively “healthier and fresh offerings” on the menus, but this seems less and less likely to happen.

There are some other names we also think are potentially ripe for M&A. The first is BJ’s Restaurant (NASDAQ:BJRI), a bar/restaurant chain famous for its Pizookie offerings that has seen recent management changes. The stock has rallied of late, but on some weakness. We think the chain would make a good addition for a Darden (NYSE:DRI) or even a Brinker (NYSE:EAT) to diversify holdings.

We also think you could see some consolidation in the coffee space. Again, very competitive, and Dutch Bros (NYSE:BROS) has been in growth mode. The company looks ripe for a major coffee chain like Starbucks (NASDAQ:SBUX) to come in and look to merge.

Another name in fast casual that has been crushed is Red Robin Gourmet Burgers (NASDAQ:RRGB). Many years of sales and comps pressures. This one is a pretty good competitor with Brinker’s (NYSE:EAT) fast casual offerings, and a strategic acquisition here could be in the cards.

While there are balance sheet considerations for both potential targets and acquirers, we think these names are possibly up for grabs.

Pedro Goulart: A few restaurant chains are definitely in the spotlight this year, especially as organic growth gets harder to come by. Even with high capital costs, there are some interesting takeover talks floating around.

El Pollo Loco (NASDAQ:LOCO) is probably the clearest case. Biglari Holdings (NYSE:BH)—already known for owning Steak N’ Shake and Western Sizzlin’—seems to be eyeing a move into fast casual. They already have a 15% share, which makes things easier.

Another name that’s been popping up as a possible target is Nathan’s Famous (NASDAQ:NATH) — you know, the century-old hot dog legend. Smithfield Food Group (NASDAQ:SFD) might be interested, especially to tap into some operational synergies around product licensing. Plus, with the chairman hitting nearly 80 and holding about 25% of the company, it could be a pretty interesting exit opportunity.

One big name that’s been struggling is Del Taco. The fast-food chain, owned by Jack in the Box (NASDAQ:JACK), has seen negative same-store sales for at least six straight quarters—and the drop actually sped up in Q1. Jack (NASDAQ:JACK) bought Del Taco for $585 million back in 2022, but now it’s reportedly considering selling it off as part of its “Jack On Track” plan to cut $300 million in debt. Definitely one to watch.