5 Reasons Jack in the Box is the Next Takeover Target
With the Burger King (BKC) going-private deal concluded, the private-equity rumor mill is working overtime mulling which fast-food also-ran could be next. Among those frequently mentioned are Sonic (SONC) and McCormick & Schmick's (MSSR), but the prime suspect is Jack in the Box (JACK). With sales down, Jack could be caught in a weak moment here and snapped up for a relative bargain, then fairly easily polished up as the economy improves for a profitable resale. In other words, they're in the P-E sweet spot.
Here's five reasons why Jack would make a tasty acquisition:
- Room to grow. With 2,100 restaurants in 18 states, Jack is considered a "super regional" player rather than a national one. Unlike fast-food competitors such as KFC, which are already overstored, Jack has plenty of run room left.
- A classic brand. Because it's not too big, Jack never became passe or overexposed. It also hasn't overhauled its concept so much that baby boomers who grew up on it now wouldn't even recognize the place (yeah, that's you again, KFC).
- Menu innovation and execution. Jack has been one of the better chains at continuously coming up with intriguing new menu items (currently a grilled pastrami sandwich and mini-funnel cake) and ingredients that add pizzaz (i.e. chipotle). Chain basics such as onion rings are also best-in-class.
- Fun ads. Unlike Burger King, which has suffered from ad schizophrenia of late, Jack's ads are in a groove -- amusing, and consistently centered around a new product. There's not much that needs fixing here.
- A growing fast-Mexican subsidiary. Jack owns Qdoba, one of the better fast-food Mexican chains. While McDonald's (MCD) sold off its stake in Chipotle, and Wendy's (WEN) sold off Baja Fresh, Jack smartly hung onto its chain of 500 quick-serve Mexican eateries.The advantages? Obviously, Qdoba's got even more room to grow than Jack does. Owning Qdoba also gives Jack flexibility as it expands. One of the banes of life as a franchise owner is eventually, you can't put any more Jack in the Box units in a market -- but with Qdoba, a Jack in the Box franchisee could keep opening stores in their town. Another Qdoba plus: sales are still growing at this chain, while they're down more than 9 percent at Jack's stores.
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