Del Frisco’s Buys Barcelona Wine Bar, Bartaco for $325M in Cash
Del Frisco’s first-quarter earnings came with a blockbuster announcement for the restaurant company. The parent company of Del Frisco’s Double Eagle Steakhouse, Del Frisco’s Grille, and Sullivan’s Steakhouse entered into a definitive agreement to acquire Barteca Restaurant Group for $325 million in cash.
Barteca includes Barcelona Wine Bar and bartaco. The company operates 31 restaurants across 10 states and Washington, D.C.
“We believe Barteca's innovative and ‘best in class' concepts are highly complementary and will provide Del Frisco's portfolio with significant growth and development opportunities. They will provide opportunities to enable us to capture market share in the experiential dining segments, while mitigating the risk of seasonality and economic downturns to our current restaurant portfolio," said Norman Abdallah, chief executive officer of Del Frisco's Restaurant Group, in a statement.
There are 15 Barcelona concepts and three under development. The largest Spanish restaurant concept in the U.S. is known for its wine list of 400 Spanish and South America wines and is inspired by the culture of Spain and its tapas bars. Del Frisco’s said it estimates market potential of 50–100 domestic restaurants.
Bartaco has 16 locations and four under development. Del Frisco’s sees this as the larger growth vehicle with the market potential between 200–300 domestic restaurants.
This is a major potential growth move for the company, which operates a total of 53 restaurants across 23 states and Washington, D.C.
Barcelona generated $60.2 million in net sales in 2017, including a 1.9 percent increase in same-store sales, year-over-year. Average unit-volumes are $4.7 million and average checks $35. Del Frisco’s said the current sales to investment ratio is 2.3 times, and cash on return is 57 percent.
Bartaco recorded $67.1 million in net sales last year, including an impressive 7.3 percent lift in same-store sales. Restaurant-level EBITDA was $17.5 million, representing a 26.1 percent margin. AUV clocked in at $5.6 million and average check was about $22. Sales to investment was three times, and cash return of 87 percent.
Barcelona appreciated same-store sales growth of 1.7 percent in Q1, and Bartaco had 2.6 percent gains. Barteca is majority owned by private-equity firms General Atlantic LLC and Rosser Capital Partners.
“Similar to Del Frisco's own vision and mission, Barteca's founders Andrew Pforzheimer and Sasa Mahr-Batuz created Barcelona and bartaco to celebrate life in restaurants through great food, wine and hospitality,” Abdallah added. “As a result, their award-winning concepts have become leading ‘experienced-based' lifestyle brands that provide them competitive advantages in the marketplace. These include connectivity beyond the four-walls of the restaurants, culture and brand transcending food, and powerful ‘halos' that drive appeal and loyalty. We are thrilled to be welcoming Barteca to our family."
Del Frisco’s Board of Directors unanimously approved the transaction, and it is expected to close by the end of the company’s second quarter. It does not require approval by Del Frisco’s shareholders.
After the sale Del Frisco’s said Jeff Carcara, Barteca’s current CEO, would continue to lead the brand, and now report to Abdallah.
"We have tremendous brand pride across Barcelona and bartaco, the excitement about our growth and potential is palpable in both our new and existing restaurants," Carcara said in a statement. "Our focus has and always will be creating truly memorable experiences for our guests—and really empowering our teams to walk the walk, not just talk the talk. I believe Norman and the team at DFRG share in the vision for what's possible in terms of our evolution. There is strength in numbers and I am excited to see what more we can accomplish together."
"This transaction directly aligns with the long-term strategy we established for Del Frisco's when I joined the Board of Directors in 2015," added Ian Carter, chairman of Del Frisco's Restaurant Group, in a statement. "Barcelona and bartaco are the perfect additions to the Del Frisco's portfolio, and are well-positioned to deliver a long-term positive impact on our team, guests and shareholders. On behalf of the Board, I want to welcome Jeff and the entire Barteca team to the Del Frisco's family. We look forward to a bright future together."
Del Frisco’s saw its same-store sales decrease 3.6 percent, including a 9.3 percent drop in customer counts, partially offset by a 5.7 percent lift in average check, in Q1 versus the prior-year period.
The company credited the soft results to adverse weather conditions, the rolling over of the presidential inauguration in Washington, D.C., and the shift of the Super Bowl from Houston to Minneapolis, where the company doesn’t have any restaurants. Excluding these factors, the company said it would have reported slightly positive numbers.
Broken down, comps fell 1.4 percent at Del Frisco’s Grille thanks to a 7.1 percent decline in customer counts and a 5.7 percent in average check. They dropped 2.8 percent at Double Eagle due to a 6.7 percent decrease in customer counts, partially offset by a 3.9 percent boost in average check. Same-store sales fell 10.3 percent at Sullivan’s, driven by a 20.7 percent decrease in customer counts, partially offset by a 10.4 percent hike in average check. The company credited this to eliminating lunch at selected units, which began during Q2 2017.
“With the onset of spring and winter now firmly behind us, we are encouraged that sales trends have improved in all three Brands during the first five weeks of the second quarter on a sequential basis. We believe that this improving momentum, coupled with the timing of the marketing expenses that weighed down the first quarter, positions us within our 2018 guidance range for adjusted net income, exclusive of the impact of the potential divestiture of Sullivan’s and the proposed acquisition of Barteca,” Abdallah said in a statement.
Abdallah said in addition to the divestiture of Sullivan’s, the company plans to close underperforming Grille locations. Four are expected to close this year, as are two Sullivan’s (one, in Austin, Texas, has shuttered already).
Del Frisco’s mentioned it was looking at strategic alternatives for Sullivan’s in its last earnings call. As an update, the company said it “has several bids from interested parties to purchase the concept and are in the process of negotiating terms. We anticipate having a signed agreement in place within the next 60–90 days, but can give no assurances this will be the case.”
On the development front, Del Frisco’s expects to open two Double Eagle Steakhouses in Atlanta and Boston during the third quarter, and Century City, California, during the fourth. A Grille in Philadelphia and Fort Lauderdale, Florida, are planned for Q4.