4 Analysts On Dunkin'-Inspire Brands M&A Deal: 'Solid Price'

Coffee chain Dunkin Brands Group Inc DNKN confirmed Friday evening that it struck deal to sell itself to Inspire Brands for $106.50 per share.

The Street's mostly supportive of the deal — and questioning whether it signals further M&A deals ahead in the restaurant space. 

The Dunkin' Analysts

Credit Suisse analyst Lauren Silberman downgraded Dunkin' from Outperform to Neutral with a price target lifted from $75 to $106.50.

BMO Capital Markets analyst Andrew Strelzik maintains a Market Perform rating on Dunkin's with a price target lifted from $80 to $106.50.

Morgan Stanley analyst John Glass maintains an Equal-weight rating on Dunkin's with a price target lifted from $81 to $106.50.

KeyBanc Capital Markets analyst Eric Gonzalez downgraded Dunkin' from Overweight to Sector Weight.

Credit Suisse On Dunkin' Deal Details

Dunkin' and Inspire jointly confirmed a merger agreement Oct. 30 that values Dunkin's core coffee chain and Baskin-Robbins at $11.3 billion including debt, Silberman said in a note.

The price tag implies an EV/EBITDA multiple of 23 times on 2019 EBITDA and 24.5 times on last 12 months' EBITDA, the analyst said. 

The deal is the second-largest in the restaurant sector in the last 10 years the largest transaction since Tim Hortons was acquired by Restaurant Brands Interntional Inc QSR in 2014 for around $14.6 billion, she said. 

From a valuation perspective, the deal is the largest of its kind seen in at least the last decade, Silberman said. 

Related Link: 10 Biggest Price Target Changes For Monday

Why BMO Says Dunkin' Deal Has 'Solid Price'

Dunkin' investors are receiving a "solid price," as the M&A deal values the company at roughly 21 times to 21.5 times EV/EBITDA on 2021 estimates, Strelzik said in a note.

The deal also represents a 20% premium to the stock's pre-pandemic valuation rage of around 17 times NTM EV/EBITDA and compares favorably with other highly franchised peers, the analyst said. 

Dunkin' management deserves credit for "capitalizing on the foundational improvements" to its business over the last few years, he said.

Dunkin' improved its brand image, digital offering, value, operations, and geographic location through a Western expansion, according to BMO. 

Morgan Stanley On Logic Behind Dunkin' Deal

Inspire has expertise in "creating a scale operation" for restaurants, and the deal will transition it to become the fifth-largest restaurant operators in the world, Glass said in a note.

The large scale will better position Inspire to share resources across its many brands, including technology, marketing, franchisee relations and corporate overhead, the analyst said. 

Inspire likely sees untapped unit growth potential for both Dunkin' and Baskin in the U.S. and globally, he said. 

Most notably, Dunkin is the only national and non-premium priced coffee brand in the U.S.

The odds of the deal closing are "high" given a hefty price tag on a valuation basis, while the odds of a competing bid are "low," in Morgan Stanley's view. 

KeyBanc: Is M&A Back?

Dunkin' and Inspire's merger is unlikely to be followed up with other deals of this magnitude anytime soon, Gonzalez said in a note.

Restaurant operators looking to expand through acquisitions can seek out struggling brands at a discount, the analyst said. 

Papa John's Int'l, Inc. PZZA was likely on Inspire's "wish list," but confirmation of a deal with Dunkin' implies that an acquisition of the pizza chain is now "less likely" in the near-term, he said. 

DNKN Price Action

Dunkin' shares were trading 6.41% higher at $106.10 at the time of publication Monday. 

Photo courtesy of Dunkin.'