Skip to Content
Stock Analyst Update

Dunkin’ Buyout by Inspire Brands Would Be Excellent

The reported buyout price is a 42% premium to our $75 fair value estimate.

Mentioned: , , ,

On Oct. 25, narrow-moat Dunkin' Brands (DNKN) confirmed that it has held discussions about a potential acquisition by Roark Capital-backed Inspire Brands, the parent company of Arby's, Sonic, Buffalo Wild Wings, Jimmy John's and others. The company did not release other details regarding a possible transaction, but The New York Times reported that a deal could come as soon as Oct. 26 with a buyout price of $106.50 per share, representing a valuation of $8.8 billion and a 20% premium to the Oct. 23 closing share price of $88.79.

We believe this would be an excellent transaction for existing Dunkin' shareholders, as it represents a 42% premium to our $75 fair value estimate (which assumes 4% average annual top-line growth over the next 10 years and adjusted operating margins approaching 42% by 2029, versus 34% last year). The rumored purchase also represents 18.5 times Dunkin's 2019 EBITDA of $475 million--well ahead of the five-year average restaurant industry M&A/buyout trailing-12-month enterprise value/EBITDA multiple of 11-12 times (based on data from PitchBook).

From an operations standpoint, we believe Dunkin' and Baskin-Robbins would complement Inspire's existing brand portfolio from a franchisee ownership (100%) and geographic perspective--Dunkin could find potential franchisee partners from existing Arby's and Sonic franchisees in the South and West, and would be Inspire's second brand with a meaningful international footprint behind Arby's. Assuming the transaction is completed, Inspire would become the fifth largest restaurant system in the world with over 20,000 units, trailing Yum Brands (YUM) (50,400), Subway (44,700), McDonald's (MCD) (39,000), and Restaurant Brands International (RSTRF) (27,100).

We believe there is a strong probability that a Dunkin buyout will take place, but we'll wait for a formal transaction announcement before making changes to our $75 fair value estimate, which is based on a discounted cash flow analysis on a standalone basis.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.