CAVA to acquire Zoe's Kitchen for $300 million

(Reuters) - CAVA, a U.S. privately held restaurant chain focusing on casual Mediterranean cuisine, said on Friday it has agreed to acquire publicly listed peer Zoe's Kitchen Inc ZOES.N for around $300 million including debt, with backing from a group of investors.

The company logo and trading information for Zoes Kitchen is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., August 17, 2018. REUTERS/Brendan McDermid

The deal, first reported by Reuters, will expand CAVA’s footprint from 66 locations to 327 in 24 U.S. states. It makes Zoe’s the latest restaurant operator to sell itself amid increasing competition among casual chains, which has pressured the sector to consolidate to boost profit margins.

Other recent deals in the U.S. restaurant industry include private equity firm Rhône Capital's $560 million acquisition in April of Brazilian steakhouse chain Fogo de Chão Inc, and Del Frisco's Restaurant Group Inc's DFRG.O $325 million acquisition in June of tapas bar operator Barteca Restaurant Group.

The combination of CAVA with Zoe’s will create the largest restaurant operator in the Mediterranean category, set to be further bolstered by operational investments.

“This truly allows us to reach guests in all markets, whether it is the coast or in-between,” CAVA CEO Brett Schulman said in an interview.

“We’re looking forward to learning more about the Zoe’s business and understanding how we can apply a lot of the digital capabilities we’ve built through the years at CAVA,” Schulman added.

CAVA will pay $12.75 per share for Zoe’s, a 33 percent premium to Thursday’s closing price. The group of investors offering financing to CAVA for the acquisition includes investment firm Act III Holdings, led by Panera Bread founder and chairman Ron Shaich, they said. Other financial backers include the Invus Group, as well as existing investors SWaN & Legend Venture Partners and Revolution Growth.

Shaich will serve as chairman of the combined company, while Schulman will be CEO, the companies said.

Under the terms of the deal, Zoe’s Kitchen will have a 35-day ‘go-shop’ period to seek a better acquisition offer.

CAVA was started in Rockville, Maryland in 2006 by three Greek-American friends, Ike Grigoropoulos, chef Dimitri Moshovitis, and Ted Xenohristos. Zoe’s was founded in 1995 and has 261 locations in 20 U.S. states.

Morgan Stanley MS.N acted as financial advisor to Act III Holdings and the Invus Group. Citigroup Global Markets Inc C.N acted as financial advisor to CAVA. Skadden, Arps, Slate, Meagher & Flom acted as legal advisors to CAVA. Sullivan & Cromwell and Simpson Thacher & Bartlett served as legal advisors to Act III Holdings and the Invus Group, respectively.

Reporting by Greg Roumeliotis and Harry Brumpton in New York; Editing by David Gregorio