• by Thom Forbes  @tforbes, September 26, 2018

Inspire Brands is buying the more than 3,600 independently owned drive-in restaurants flying under the Sonic banner for $2.3 billion, a deal that includes the assumption of its debt.

Oklahoma City-based Sonic “is unique in part because it is a drive-in restaurant, but it also has a diverse and quirky menu. The company offers everything from hot dogs and cheese fries to ice cream, limeades and flavored slushes,” write CNBC’s Lauren Hirsch and Sarah Whitten. 

“The cash deal, which will pay $43.50 for shares of Sonic, will see Sonic become a private company. Sonic boasted $4.4 billion in sales last year, according to Nation’s Restaurant News, besting companies like Dairy Queen, Hardee’s, and Five Guys. That figure is still less than half of Wendy’s sales, though, and just 11% of McDonald’s total sales,” reports Chris Morris for Fortune.

“Sonic is a highly differentiated brand and is an ideal fit for the Inspire family,” Inspire CEO Paul Brown says in the press release announcing the deal.

“The acquisition comes as Sonic has struggled against competition from bigger rivals like McDonald's and Burger King. Same-store sales for the chain have fallen for the last two years, but were set to rebound in the fiscal fourth quarter of this year,” CNBC’s Hirsch and Whitten point out.

Atlanta-based Inspire was formed as a holding company in February by private equity firm Roark Capital Group after Arby’s agreed to acquire Buffalo Wild Wings. It also includes the smaller Rusty Taco chain, which was founded in Dallas in 2010 and now has 27 locations in six states. 

Roark, which has raised about $11 billion in equity capital since its inception, says its largest sector is food and restaurants -- including investments in CKE Restaurants, which owns Carl’s Jr and Hardee’s; the Corner Bakery; and FOCUS Brands, whose brands include Auntie Anne’s Pretzels, Carvel Ice Cream, Cinnabon, Jamba Juice and Schlotzsky’s.

Inspire “is building a portfolio of fast-food chains that it hopes will allow it to compete in different segments of the sector. Restaurant Brands International, which owns fast-food chains Burger King, Tim Hortons and Popeye Louisiana Kitchen, has a similar portfolio model as restaurant groups are trying to diversify their offerings amid changing consumer tastes and higher food and labour costs,” observes James Fontanella-Khan for Financial Times.

“Two other privately held food companies, JAB Holding Co. and Focus Brands, also are broadening their portfolios to include brands with sometimes little in common. Focus Brands owns Cinnabon, McAlister’s Deli and Jamba Juice, among other chains. JAB owns sandwich chain Pret A Manger, Panera Bread, Krispy Kreme donuts and coffee chains including Peet’s and Caribou," writes Julie Jargon for the Wall Street Journal. 

“‘Just when you think you’ve figured out their strategy, they go and buy something you wouldn’t have thought of,’ William Blair analyst Sharon Zackfia said of JAB and Focus,” Jargon continues.

“That’s a contrast with the approach of competitors such as Yum Brands Inc. and Darden Restaurants Inc., which have focused on a single type of restaurant chain. Yum owns fast-food brands including Taco Bell and Pizza Hut, while Darden’s casual-dining chains include Olive Garden and LongHorn Steakhouse,” she adds.

Inspire CEO and co-founder Brown seems as enamored of compelling brand stories as he is of putting together a diverse portfolio.

Rusty Taco co-founder Rusty Fenton passed away in 2013 but his co-founder and spouse, Denise Fenton, still serves as brand director for the chain. It announced earlier this month that it was reverting back to  the Rusty Taco moniker after spending three years known simply as as R Taco.

“I came into the original Rusty Taco in Dallas, Texas, late in the afternoon one day after we were acquired, and I looked up and saw Inspire Brands CEO Paul Brown with a group of people walking in the door. I had no idea they were stopping by the restaurant,” Denise Fenton told Franchise Times’ Tom Kaiser a few weeks ago. 

“I introduced myself, and Paul said he loved the name Rusty Taco. I think he saw this as a brand with a story behind it. There was a man named Rusty who had a dream and chased that dream. Paul is very connected to people and their story, and he took the time to find out ours.”

Sonic has a fascinating tale to tell, too, according to its Wikipedia entry. But you’d be hard put to find its history on either of its websites. It will be interesting to see what Brown does with it.