LAKE FOREST, CALIF. — Levy Acquisition Corp. (NASDAQ: LEVY) has acquired Del Taco Holdings for about $500 million. Del Taco will now become Levy’s sole direct subsidiary.
Del Taco has been a popular choice for Mexican-American fast casual fare in Southern California since 1964. It now operates 547 Mexican-American restaurants in 16 states, making it the second-largest Mexican American quick-service restaurant chain in the U.S. The largest concentration of stores is situated in the Pacific Southwest.
Del Taco owns more than 300 of these stores. The remaining stores are owned and operated by franchisees.
Levy Acquisition Corp. (LAC) plans to change its name to Del Taco Restaurants Inc. once the merger is complete in June. It will continue to trade on the NASDAQ stock exchange.
Del Taco will receive a private equity investment of $120 million from restaurateur Larry Levy’s family and other new investors (operating as LLI) prior to the sale’s closing. Levy will become chairman of the Del Taco board of directors after the equity investment is made, before the merger is complete. He will also partner with management to oversee the company’s growth and brand building.
The LLI purchase price is based on a $500 million enterprise value for Del Taco that excludes transaction costs. A subsidiary of LAC will merge into Del Taco, making the company a wholly owned subsidiary of LAC.
“We have been searching to acquire a growing restaurant brand for over a year and when we focused on the iconic Del Taco, we knew it was perfect,” says Levy. “Del Taco’s menu has fresh, high-quality items…at a great value. To me, it offers the quality and freshness found at fast-casual concepts but with an average check price that is more typical of a QSR.”
The chain experienced system-wide sales of $656.1 million in 2014, representing a year-over-year growth of 5.4 percent.
Del Taco’s management team is expected to remain in place following the merger. Levy will begin his role as the chairman of Del Taco’s board of directors this month.
Levy co-founded Levy Restaurants in 1978. He and his partner grew the company from a single delicatessen in Chicago into an international food service company that now generates more than $1 billion in annual revenue. Levy Restaurants was sold in two stages, in 2000 and 2006. LAC was formed in October 2013 as a blank check company that focuses on mergers, capital stock exchanges, asset acquisitions, stock purchases and reorganizations.
“We are very excited to be partnering with Larry Levy and LAC,” says Paul Murphy, Del Taco’s president and CEO. “The results to date have surpassed our expectations with growing average unit volumes and substantial margin improvement. In Del Taco’s company-owned stores, we have posted 10 consecutive quarters of positive same-store sales driven by balanced traffic and check growth.”
Del Taco will increase senior debt by $35.1 million through the use of an incremental term facility and the revolving credit facility under an existing credit agreement with GE Capital. The proceeds of LLI’s $120 million equity infusion and the additional senior debt will be used to retire Del Taco’s subsidiaries’ existing $111 million senior subordinated notes, which are due in 2019 and 2022. This money will be used to acquire about $29 million of the existing equity in Del Taco from its current stockholders. It will also cover transaction expenses.
LAC will pay a per-share price in cash to certain Del Taco stockholders and in stock to all Del Taco stockholders that reflects the $500 million valuation. Two private investors have also agreed to purchase $35 million of unregistered LAC stock for $10 a share. This implies an enterprise value of $558 million for the combined business, or less than nine times its 2015 estimated adjusted EBITDA, which includes estimated fees and expenses and the impact of LAC founder shares (other than those subject to an earn out).
LAC will give its current stockholders the opportunity to redeem their shares of common stock for about $10 per share prior to the merger’s closing. Once the merger has closed (assuming there are no redemptions by LAC’s public stockholders), LAC’s ownership will be composed of LAC public shareholders (40 percent); LLI (31 percent); and the original Del Taco shareholders, which includes management (11.2 percent), private placement shareholders (9.3 percent) and Larry Levy’s family (8.5 percent).
LAC’s advisory team consisted of Jefferies LLC as its mergers and acquisitions advisor; Citigroup Global Markets as its equity capital markets advisor; and McDermott, Will & Emery LLP and Sperling & Slater PC as its legal advisors. William Blair & Co. also rendered a fairness opinion to LAC’s board of directors.
Del Taco’s team consisted of Goldman, Sachs & Co. as its mergers and acquisitions advisor and Fried, Frank, Harris, Shriver & Jacobson LLP as its legal advisor.
LAC’s stock price closed at $10.26 per share on Thursday, March 12, up from $9.69 per share a year ago.
— Nellie Day