Jack in the Box is buying out Del Taco, the country’s second-largest Mexican fast-food chain, in a deal worth $575 million, which includes existing debts, according to a company statement published Monday.
“This is a natural combination of two like-minded, challenger brands with outstanding growth opportunities. Together, Jack in the Box and Del Taco will benefit from a stronger financial model, gaining greater scale to invest in digital and technology capabilities, and unit growth for both brands,” said Darin Harris, CEO of Jack in the Box.
The company will pay $12.51 per share in cash in a transaction that has valued Del Taco at an adjusted multiple of almost 7.6 times trailing twelve months adjusted earnings before interest, taxes, depreciation, and amortization. Based in San Diego, Jack in the Box was founded in 1951 and currently operates more than 2,200 hamburger restaurants in 21 states and Guam.
Headquartered in Orange County, Del Taco was founded in 1964, and has 600 restaurants across 16 states, serving approximately three million guests per week, with almost all stores featuring a drive-thru. When combined, the brands will cover 25 states. Drive-thrus have become extremely popular during the pandemic when customers preferred to simply grab and leave, without entering the premises.
Jack in the Box had previously owned another Mexican fast food chain, Qdoba, which it sold to Apollo Global Management in March 2018. When Jack in the Box bought the taco eatery back in 2003, it was bringing in $65 million in sales. In 2017, the brand was raking in around $820 million.
Jack in the Box also sells tacos, egg rolls, and teriyaki bowls on its menu while Del Taco sells hamburgers and fries besides burritos, tacos, and nachos.
“Del Taco has a loyal, passionate guest base and a strong operating model, and we believe that we can leverage our infrastructure, experience refranchising, and development strategy to support Del Taco’s growth plans and expand Del Taco’s footprint,” said Jack in the Box CEO Darin Harris.
In Monday afternoon trading, Jack in the Box shares were down more than three percent, while Del Taco’s went up by around 65 percent to $12.54 per share. The parent company’s share has fallen over 10 percent in 2021, with a current valuation of $1.76 billion, while Del Taco’s is around $450 million.
The deal is expected to be financed through issuing additional securitization notes with a commitment from BofA Securities, according to the announcement, and will be closing in the first quarter next year.
“We expect this transaction will provide Del Taco with the scale, complementary capabilities and opportunity to become even stronger partners to our franchisees and support their ability to drive substantial growth in our core and emerging markets,” said John D. Cappasola, Jr., President and CEO of Del Taco.