Zoes Kitchen, known as a neighborhood casual Mediterranean restaurant, is set to be acquired by it's competitor Cava.
Cava is taking over Zoes and is like a Mediterranean Chipotle with customizable grain bowls, salads and pitas.
Ron Shaich, founder of Panera Bread, is a mastermind of sorts behind this merger.
You may have seen Cava dips on the shelves of Whole Foods, but you are about to see a lot more of Cava in Texas since Plano-based Zoes Kitchen agreed to an acquisition by the privately-held Cava Group, a D.C. fast-casual Mediterranean restaurant conglomerate.
Derived from fine-dining chefs’ recipes, the chain is like a Mediterranean Chipotle with customizable grain bowls, salads and pitas. And Panera Bread founder Ron Shaich is dipping his fingers into this deal.
Before the stock market opened on August 17, Zoes stock was priced at $9.52 a share. Cava Group offered to buyout the Mediterranean chain for $12.75 a share in cash. This is a 33 percent premium and values the company at nearly $300 million. The deal also requires Zoes to go private.
With Cava’s 66 locations and Zoes 261 locations, Cava will expand to encompass 327 storefronts in the United States. It is still uncertain if Zoes will remain a distinct concept or merge with Cava.
Since Cava is much smaller than Zoes, the deal occurred with secured funding by an equity stake from the private investment firm Act III Holdings. The investors inside this group include chairman Ron Shaich, Invus Group, and SWaN & Legend Venture Partners and Revolution Growth.
Under the terms of the deal, Zoes will have a 35-day shopping period for a better acquisition offer. If Cava ends the deal in this period, it owes Zoes $17 million. Zoes termination fee is $8.5 million.
Analysts seem to agree that Zoes will not find another bid in the 35 days. Since January, Zoes’ stock dropped more than 23 percent, so going private with this absorption deal may be the only solution for recovery.
The Panera Influence
Current Zoes shareholders earn money at a large premium, but the stock still trades close to an all-time low since the company went public in 2014. Sales increased as the company expanded, so revenue was not the problem. Foot traffic and sales just declined at existing locations, which led to a decline in share prices.
Many find this deal mouthwatering, as it’s one of the most important restaurant acquisitions to watch because of Shaich’s involvement. Attention, stock market buffs.
Ahead of the curve, Shaich modernized Panera’s order and pay process with kiosks before all of his rivals. He also strategically branded Panera as healthy fast food by advertising sugar and caloric information on the menu, and ditching artificial ingredients and preservatives.
He is a playmaker in the casual healthy food revolution and has an eye for up-and-coming trends. Brett Schulman, Cava’s current CEO, will continue in his role following the merger.
“Together these businesses will create the leading company in one of the most important categories in fast casual today – Mediterranean – with the capabilities to drive extraordinary customer satisfaction and powerful growth,” Shaich says in a statement.
Cava with Zoes is in position to be the largest restaurant operator in the Mediterranean food category with a scalable business model. The company is still deciding if they want to transform all Zoes into Cava or have the two restaurants operate separately under Cava Group. It’s unclear how and if the brands will merge their restaurant concepts.
“Zoes has a great real estate footprint in the South and Southeast, which is complementary to our footprint weighted toward the coasts,” Schulman tells the Richmond Daily Dispatch. “They have a loyal following, so we want to understand how we can best serve their needs, whether that’s through our assembly line at Cava or through the cafe format.”
One thing is for certain: this Mediterranean power couple is set to spice up the ultra-competitive fast casual dining scene.