Jack in the Box bought Del Taco in 2022 for $575 million. It quickly gushed about the “perfect fit” the Mexican fast-food chain would be to the core brand, citing the geography, culture and business model. The company predicted it would generate $15 million in “synergies” by combining the companies. And executives at the time hinted, though they did not promise, they might eventually look at other deals.
But then the CEO who engineered the deal left in January of this year and just weeks after taking over, new CEO Lance Tucker decided to do away with the idea of running two brands under one roof. One bad year for Del Taco and suddenly the burden of operating two chains under one roof became too great, no matter how good the alleged cultural fit or whatever “synergies” executives say they’ve found.
And yet it’s not remotely surprising. Buyer’s remorse is a common affliction among publicly traded restaurant chains that take a shot at owning another brand. They buy a company boasting about “synergies” and then things don’t work out well and executives get so distracted trying to fix the concept they just bought that everything else starts to suck and they have no choice but to write it all off. In the process they typically lose millions.
And yet it’s less than what they’d lose by keeping the brand.
Arguably the most notorious such situation involved Macaroni Grill. We did a TikTok on this. In 2014, Ignite Restaurant Group, the owner of Joe’s Crab Shack, bought the chain for $55 million and couldn’t stop gushing about what a deal it got. But executives spent two years trying to get its new acquisition on the right side of sales growth. In the process its core brand struggled. Ignite sold Mac less than two years later for $8 million.
By 2018, both Ignite and Mac Grill were in bankruptcy.
Bob Evans in 2004 bought Mimi’s Café for $103 million. In fairness here, Bob Evans would keep Mimi’s for a lot longer than Jack in the Box is keeping Del Taco. But Mimi’s never fulfilled its promise. There were major cultural differences. Bob Evans sold Mimi’s in 2013 for $50 million. But that included a seller’s note for $30 million, so the real price was $20 million.
It’s not quite the same thing, but in 2008, Triarc Companies, the owner of Arby’s, bought Wendy’s for $2.34 billion just two years after activist investor—and Triarc owner—Nelson Peltz demanded that Wendy’s sell Tim Hortons. Just three years after that deal, the newly-named Wendy’s-Arby’s Group decided that it would be better off as a one-chain operation after all and sold … Arby’s, to Roark Capital, for the paltry sum of $130 million. Wendy’s kept an 18.5% stake, worth $30 million at the time. Wendy’s sold it seven years later for $450 million so it worked out.
There are other stories. In 2002 Yum Brands bought A&W and Long John Silver’s for $320 million. It spent years messing around with cobranding them with KFC, Taco Bell and Pizza Hut. And then in 2011 it did away with all of that and sold the two concepts in separate deals for a price so small the publicly traded Yum could get away with not disclosing the terms.
One of my favorite all-time stories, however, belonged to Del Frisco’s Restaurant Group. The company in 2018 bought Barteca Restaurant Group, at the time the owner of Barcelona Wine Bar and Bartaco, for $325 million. At least part of the reason was due to executives’ fear that the company would be bought by Tilman Fertitta. The problem: Del Frisco’s borrowed the entire amount of the sale price, which was about the same amount as the company’s market cap at the time. Its stock price plunged. Investors grew angry. Del Frisco’s was sold 18 months later to the private-equity firm L Catterton, which kept Barcelona and Bartaco and sold Del Frisco’s to … Fertitta.
Executives are driven by various reasons to make acquisitions. But the deals often don’t pan out, for one reason or another. Del Taco had always had its challenges. But its sale was followed by inflation issues and then California’s minimum wage and, according to CEO Lance Tucker, there were “integration issues.”
Cultural changes also create havoc, as in the case of Bob Evans and Mimi’s. Or maybe recessions create problems, like with Arby’s. Or just corporate strategies don’t pan out, like Yum and cobranding.
And then many times executives just make mistakes.
Regardless, it’s all a reminder that big acquisitions are risky endeavors. They can become problems, for a variety of reasons. And then companies decide they’ll be better off taking a loss, which is what will almost certainly happen in the Del Taco situation.