Inspire's Deal for Dunkin' Brands No Surprise, but the Price Was

Following a New York Times report of talks a week earlier, Dunkin’ Brands Group Inc. (NASDAQ: DNKN) private equity funded Inspire Group announced last Friday that Inspire would acquire Dunkin’ for $106.50 per share in cash in a deal valued at $11.3 billion. The Times story reported a possible price that was around $2.3 billion less.

Dunkin’ Brands owns the Dunkin’ and Baskin-Robbins chains, and private equity-backed Inspire Group owns a portfolio of restaurant brands, including Arby’s, Buffalo Wild Wings, Jimmy John’s, and Sonic drive-ins. Dunkin’ and Baskin-Robbins combined have more than 20,000 stores around the world, and all are franchised.

The final price represents a premium of about 30% to Dunkin’s 30-day volume-weighted average price before the Times story. Dunkin’s stock rose by about 18% on the Monday following the weekend report before closing up 16%.

Since coming public in 2011 at $19 a share, Dunkin’ shares had risen by more than 350%. That includes a drop of 47% in March from January’s opening price. Since then the stock has risen by 125% to an all-time high of $89.85, posted before the Times story.

Cheap capital combined with Dunkin’s predictable cash flow made this an opportunistic deal for Inspire Group. The firm is backed by private equity firm Roark Capital, and the acquisition of Dunkin’ could set Inspire up for its own public offering at some later date.

Analysts didn’t waste any time reassessing the ratings and price targets on Dunkin’ stock. Ratings were either maintained at or reduced to the equivalent of Neutral, and price targets were raised to $106.50. RBC had a price target of just $69 on the stock, and Credit Suisse had previously set a price target of $75. BMO and Morgan Stanley had targets of $80 and $81, respectively.

Inspire will begin a tender offer for the shares that will close when it has acquired a majority of the stock outstanding. Then the second step will begin and the firm will acquire the rest of the shares. The deal is expected to close by the end of the year.

This is the second-largest deal ever in the restaurant space, second only to Tim Horton’s acquisition by Restaurant Brands for around $14.6 billion in 2014.

Dunkin’ stock closed up 6.5% on Tuesday at $106.19 and traded at $106.17 on Tuesday. The stock’s 52-week range is $38.51 to $106.28, and the high was set Monday.