Why Jack In The Box (JACK) Is Buying Del Taco (TACO) In $575 Million Deal

By Amit Chowdhry ● Dec 6, 2021
  • Jack in the Box Inc. (NASDAQ: JACK) and Del Taco Restaurants, Inc. (NASDAQ: TACO) announced a deal where Jack in the Box will acquire Del Taco for $12.51 per share in cash in a deal valued at about $575 million.

Jack in the Box Inc. (NASDAQ: JACK) and Del Taco Restaurants, Inc. (NASDAQ: TACO) announced that the companies have entered into a definitive agreement pursuant to which Jack in the Box will acquire Del Taco for $12.51 per share in cash in a transaction valued at approximately $575 million, including existing debt. And while this price per share offers an attractive premium to Del Taco shareholders, Jack in the Box estimates that the transaction values Del Taco at a synergy adjusted multiple of approximately 7.6x trailing twelve months Adjusted EBITDA.

Launched in 1964, Del Taco serves more than 3 million guests each week at its approximately 600 restaurants across 16 states. 99% of Del Taco restaurants feature a drive-thru, helping to achieve strong off-premise sales and a diversified daypart mix. And Jack in the Box and Del Taco will have more than 2,800 restaurants spanning 25 states with similar guest profiles, menu offerings, and company cultures – both priding themselves on serving guests with unique variety, quality, innovation, and value. The companies will create a stronger quick service restaurant (QSR) player with greater scale and the ability to enhance the guest experience while pursuing profitable growth.

The deal is expected to:

1.) Jack in the Box expects the transaction to be mid-single-digit accretive to earnings per share excluding transaction expenses in year one and meaningfully accretive beginning in year two once full synergies are realized.

2.) This transaction deal with two challenger brands with complementary geographic footprints, guest profiles, and menu offerings to create a scaled QSR player with a stronger financial model to drive growth and enhanced profitability. And Jack in the Box and Del Taco will also benefit from sharing best practices and the opportunity to strengthen guest loyalty and reach new guests. And as a combined QSR player, Jack in the Box and Del Taco plans to expand their footprint and continue to drive innovation at both brands to create more innovative menus and exceptional guest experiences.

3.) The deal allows Jack in the Box to tap into the growing and attractive Mexican QSR category where Del Taco has been a leading brand with a track record of consistent performance. By utilizing the combined scale of the companies, we will be able to effectively target secular demographic trends underpinning the category.

4.) By utilizing Jack in the Box and Del Taco’s unique strengths and their shared approach to building out markets, Jack in the Box will be able to support growth plans for both brands. And Jack in the Box will benefit from Del Taco’s strong operations, construction, and development expertise to drive more efficient expansion supporting its long-term objective of 4% annual unit growth by 2025. By utilizing Jack in the Box’s broader footprint, re-franchising experience, and digital capabilities, the combined company expects to drive energized growth at both brands in existing and new markets.

5.) The deal brings together 2 exceptional franchisee bases and creates an enhanced platform for franchisee expansion and growth by leveraging the combined company’s scale, technology, and digital capabilities. And both brands’ franchisees will benefit from economies of scale in the supply chain and more diverse opportunities to expand their businesses and drive enhanced profitability. The deal will enable both brands to provide stronger support to franchisees with a broader set of resources to help them optimize and grow their businesses.

6.) The deal will create a stronger combined organization, with increased size and scale, and the financial resources to pursue a wider set of opportunities for profitable growth. And Jack in the Box expects that the combined organization will also benefit from a more efficient capital structure. Jack in the Box expects to maintain a leverage ratio within its target range of 4.0x to 5.5x total debt to Adjusted EBITDA and an investment-grade credit rating.

7.) Jack in the Box expects the combined company to realize run-rate strategic and cost synergies of approximately $15 million by the end of the fiscal year 2023 with about half of the synergies achieved in the first year. And Jack in the Box expects to achieve these synergies largely through procurement and supply chain savings, technology and digital efficiencies, and other financial benefits, as well as knowledge-sharing initiatives.

Jack in the Box plans to finance the acquisition through the issuance of additional securitization notes from its existing program with a financing commitment provided by BofA Securities. And the transaction is expected to close in the first calendar quarter of 2022 and is subject to customary closing conditions, including receipt of Del Taco shareholder approval and regulatory approvals.

KEY QUOTES:

“We are thrilled to welcome Del Taco, a beloved brand, and proven regional winner, to the Jack in the Box family. This is a natural combination of two like-minded, challenger brands with outstanding growth opportunities. Together, Jack in the Box and Del Taco will benefit from a stronger financial model, gaining greater scale to invest in digital and technology capabilities and unit growth for both brands. This acquisition fits squarely in our strategic pillars and helps us create new opportunities for the franchisees, team members, and guests of both brands.”

“Del Taco has a loyal, passionate guest base and a strong operating model, and we believe that we can leverage our infrastructure, experience refranchising, and development strategy to support Del Taco’s growth plans and expand Del Taco’s footprint. We can’t wait to welcome the Del Taco team members and franchisees to the Jack family!”

— Darin Harris, CEO of Jack in the Box

“I couldn’t be happier about the opportunity that this transaction offers to the franchisees of these two amazing brands. I believe the Del Taco brand will fit hand in glove with ours, and further enhance the strong franchise and guest-focused culture we have worked so hard to develop at Jack in the Box. We are excited about the potential to open Del Taco restaurants, helping the company expand these two beloved brands.”

— David Beshay, a Jack in the Box franchisee and operator of 210+ restaurants

“We are excited to have found a partner in Jack in the Box that shares our vision for the future and has the QSR expertise to further accelerate Del Taco’s growth. In recent years, we have uniquely positioned Del Taco as a leader in the growing Mexican QSR category, expanded our digital capabilities to enhance consumer convenience, and focused on growing the brand through franchising, resulting in eight consecutive years of franchise same store sales growth and an accelerating new unit pipeline.”

“We expect this transaction will provide Del Taco with the scale, complementary capabilities and opportunity to become even stronger partners to our franchisees and support their ability to drive substantial growth in our core and emerging markets. On behalf of Del Taco Restaurants, Inc. Board of Directors, we’re confident the agreement delivers immediate value to Del Taco shareholders and will greatly benefit our brand, team members, franchisees and loyal guests for many years to come.”

— John D. Cappasola, Jr., President and CEO of Del Taco

“Del Taco and Jack in the Box are two iconic brands that both represent a tremendous business opportunity for existing and new franchisees. I am excited how this new larger organization can provide operating cost synergies and further accelerate franchise growth through enhanced support, additional resources and shared real estate knowledge. We are excited to join the Jack in the Box family and assist in growing both amazing brands.”

— Brent Veach, a Del Taco franchisee and operator of 50+ restaurants