Pay attention to Cava’s proposed acquisition of Zoes Kitchen

The $300 million acquisition of Zoes Kitchen by Cava Group might seem like just another merger inside highly competitive restaurant industry, yet the deal has something most don’t — the involvement of industry veteran Ron Shaich.

Shaich heads up Act III Holdings, the investment fund in which offered to help finance Cava’s acquisition of Zoes. Should the deal go through, he will become chairman of the private company. The founder in addition to former CEO of Panera Bread can be a well-known pioneer inside restaurant world using a track record of predicting consumer habits in addition to innovating ahead of competitors. His keen eye for spotting trends suggests Mediterranean cuisine can be an emerging restaurant style, which can be reinforced by consumer’s preference for healthy fare.

Shaich modernized Panera’s order in addition to pay processes with fast-lane kiosks in addition to mobile order to speed customers through the checkout years before rivals like McDonald’s in addition to Taco Bell even began testing the technology. Shaich was also responsible for positioning Panera as a healthy brand by ditching all artificial additives in addition to preservatives in its food in addition to posting caloric in addition to sugar information about its fizzy drinks. He did This specific as consumers were starting to shift toward fresh in addition to natural foods.

Shaich can be a “proven leader” with “extensive experience in scaling a regional concept into national brand,” David Tarantino, analyst at Baird, wrote in a research note Friday.

Act III was formed by Shaich in addition to his partners to make investments inside restaurant industry in which “possess the potential to dominate significant market niches,” Shaich wrote in a LinkedIn post Friday.

For Shaich, the merger between Cava in addition to Zoes meets those qualifications. With This specific deal, Cava could be poised to become the dominant player among Mediterranean-style restaurant chains in addition to could be able to grow in scale in addition to presence inside U.S.

“Ron Shaich probably understands fast casual better than nearly anyone, in addition to his involvement certainly bodes well for the success of the business,” David Henkes, principal at Technomic, told CNBC via email.

Henkes said fast casual chains, where customers can place an order at a counter then seat themselves, are a “bright spot” inside restaurant industry, which as a whole see growth of between 1 to 2 percent since 2010.

Cava can be also in a unique position for success because of its cuisine. He said while Mexican, pizza in addition to bakery cafes have become crowded spaces, there can be a lot of room inside industry for ethnic cuisines like Mediterranean.

“Cava’s growth trajectory certainly lends itself to comparisons to the early days of Panera,” Henkes said. “Over the past three years Cava has been growing an average of 72 percent, in addition to the item’s positioned in a fairly brand new in addition to underpenetrated segment of Mediterranean.”

While Cava’s sales have continued to soar, the item could scoop up Zoes at a time when various other Mediterranean chains are struggling to boost traffic in addition to sales. Competitor Noon Mediterranean, formerly Verts Mediterranean Grill, filed for Chapter 11 bankruptcy protection earlier This specific week in addition to even Zoes has struggled.

inside first quarter, Zoes posted a net loss of $3.6 million, in addition to saw sales its restaurants open at least one year fall 2.3 percent. Zoes saw a stretch of same-store sales declines throughout 2017, which followed a period of rapid expansion in which resulted in high employee turnover at its restaurants in addition to managers who had less experienced than needed.

Cava has been on the radar of restaurant experts for several years, earning top spots on Fishbowl’s emerging brands charts in 2017 in addition to 2018. The chain, which serves customizable grain bowls, salads in addition to pitas, has grown quickly since the item was spun off via full-service restaurant Cava Mezze about seven years ago.

Adding Zoes to its portfolio could expand Cava’s footprint to 327 locations via 66.

Under the terms of the deal, Zoes Kitchen carries a 35-day “go-shop” window to seek various other acquisition offers. As the item stands, Cava can be offering to pay $12.75 per share, a 33 percent premium on Thursday’s closing cost. On Friday, shares of Zoes jumped more than 33 percent.

Zoes stock cost fluctuated between $12.74 in addition to $12.88 per share on Friday, indicating in which either shareholders were expecting a second offer or short sellers were attempting to recoup their losses.

Analysts seem to agree in which another bid can be unlikely to occur in addition to believe in which going private can be the best way for Zoes to recover via a sales in addition to traffic slump in which weighed on its stock, dragging the item down more than 23 percent since January.

“While a superior bid can be possible, we could view one as unlikely when considering the substantial premium in which could be required,” Tarantino said.

Instead, the item appears in which short sellers are the reason the share cost has exceeded Cava’s offer. A short squeeze occurs when a highly shorted stock moves higher in addition to investors who are short the stock have to scramble to buy up shares to cover their positions in addition to avoid further losses. Short sellers borrow shares with the hopes of buying back the stock at a lower cost inside future. About 37 percent of Zoes shares were shorted prior to Cava’s bid, likely the result of the company’s recent sales slump.

“In my view, Cava can be likely to make further acquisitions over time in addition to will become a much bigger player inside foodservice market,” Neil Saunders, managing director of GlobalData, told CNBC via email.

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