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    The Panera Bread LBO: Nikita Gulgule (B19031) Snehal Tiwari (B19031) Anusha Sinha (B19068)

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    snehal
    Panera Bread was considering an LBO buyout. While recent initiatives had improved sales, they also eroded profit margins as Panera had yet to realize full benefits. A buyout was leaked, so the private equity firm KLG needed to act fast to avoid paying a higher premium. KLG's offered debt multiple was higher than industry average, but Panera's continued sales growth and initiatives suggested potential for future multiple expansion remaining independent. However, the recommendation was for KLG to proceed with the buyout quickly before competition drove premiums higher.

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    The Panera Bread LBO: Nikita Gulgule (B19031) Snehal Tiwari (B19031) Anusha Sinha (B19068)

    Uploaded by

    snehal
    1K views6 pages
    Panera Bread was considering an LBO buyout. While recent initiatives had improved sales, they also eroded profit margins as Panera had yet to realize full benefits. A buyout was leaked, so the private equity firm KLG needed to act fast to avoid paying a higher premium. KLG's offered debt multiple was higher than industry average, but Panera's continued sales growth and initiatives suggested potential for future multiple expansion remaining independent. However, the recommendation was for KLG to proceed with the buyout quickly before competition drove premiums higher.

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    The Panera Bread LBO

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    Panera Bread was considering an LBO buyout. While recent initiatives had improved sales, they also eroded profit margins as Panera had yet to realize full benefits. A buyout was leaked, so the private equity firm KLG needed to act fast to avoid paying a higher premium. KLG's offered debt multiple was higher than industry average, but Panera's continued sales growth and initiatives suggested potential for future multiple expansion remaining independent. However, the recommendation was for KLG to proceed with the buyout quickly before competition drove premiums higher.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    1K views6 pages

    The Panera Bread LBO: Nikita Gulgule (B19031) Snehal Tiwari (B19031) Anusha Sinha (B19068)

    Uploaded by

    snehal
    Panera Bread was considering an LBO buyout. While recent initiatives had improved sales, they also eroded profit margins as Panera had yet to realize full benefits. A buyout was leaked, so the private equity firm KLG needed to act fast to avoid paying a higher premium. KLG's offered debt multiple was higher than industry average, but Panera's continued sales growth and initiatives suggested potential for future multiple expansion remaining independent. However, the recommendation was for KLG to proceed with the buyout quickly before competition drove premiums higher.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 6
    At a glance
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    The key takeaways are that Panera Bread was considering an LBO deal with KLG. Panera Bread had robust sales but initiatives to improve performance were eroding profit margins. There was also leaked information about a potential buyout.

    The objective of the deal was to perform due diligence on whether Panera Bread is suitable for a leveraged buyout and determine an optimal premium to pay on the market value.

    Panera Bread was facing erosion of profit margins due to major investments in initiatives like Panera 2.0 and new delivery services. This meant the benefits were not yet realized and brought down the valuation. They also had higher than average debt levels.

    The Panera Bread LBO

    Nikita Gulgule (B19031)


    Snehal Tiwari (B19031)
    Anusha Sinha (B19068)
    Case Background
    Robust Sales Figures A lieu of Buyouts
    • Panera thrived in 2016 • Panera Bread were on a Buyout
    even as the restaurant spree with a $1.8 billion
    market shrank. purchase of Popeyes Louisiana
    • Panera Bread’s revenues Kitchen and the $525 million
    propelled to $2.8 billion, purchase of Checkers Drive-In
    growing by 4.2% on Restaurants.
    account of robust same- • These buyouts had paved the
    store sales and new way for further purchases in
    restaurants sales. the sector.

    Inorganic Growth model Objective of the Deal:


    Panera bread was modeled The objective is to perform due-
    for seeking inorganic growth diligence on whether Panera
    since Bread is apt for a Leveraged
    • Financial buyers were buyout and come up with an
    actively considering optimal premium to be paid on
    acquisitions in the industry the market value
    Financial Problems
    Erosion of profit margins Higher than average Debt/EBITDA multiple
     Major investments in value- improving services, such as
    Panera 2.0 and a new delivery initiative which were  KLG had to offer
    designed to improve the performance of existing stores 7.44x Debt/EBITDA
    eroded Panera Bread’s profit margins. which was
    The company had yet to reap the full economic benefit significantly higher
    of these initiatives and hence were not appropriately than industry
    factored in the valuation figures of Panera bread. average of 6.7x.

    Buyout story leak


     Panera Bread’s potential buyout was leaked to the public via a Bloomberg report. Hence, KLG needed to act fast if it
    wanted to compete for this acquisition and avoid paying a higher premium than what Panera was already demanding.
    Increased competition for attractive Buyouts Limitations in Capital Structure
     Many private equity funds began to explore a wider The capital structure would consist of a
    range of investment opportunities in the search for Revolver
    attractive buyouts. Term loan, and
     This escalation in competition made it more difficult to Subordinated debentures.
    find an attractive match. Firms also comber through The revolver would likely limit the total amount to $1.5
    competitor’s portfolio’s to replicate successful strategy. billion. A tranche of subordinated debt was also available
    to KLG, with usage limited at most to $120 million .
    Analysis and Alternatives
    Don’t Go Ahead with the LBO Go Ahead with the LBO

    Panera followed an inorganic growth strategy and adding a smaller KLG was offering a 7.44x Debt to EBITDA multiple which was a premium
    company to Panera Bread could amplify value of the combined firm when compared to the industry average of 6.7x.
    in a number of ways, including potential future multiple expansion.

    In addition, expanding sales footprint, increasing product offerings, Panera Bread had implemented a plethora of initiatives to boost their sales
    and/or eliminating duplicate management had an incremental performance like Panera 2.0 and new delivery mechanism. But instead,
    effect on Panera Bread’s ROI and hence commanded a higher these initiatives were putting a strain on resources and eroding the profit
    market premium than what KLG was willing to pay. margins. Hence, it would be better to go ahead with the Buyout.

    Panera bread had started a lieu of value- improving services, such as There was a leak in the public regarding the potential buyout of Panera
    Panera 2.0 and a new delivery initiative which were designed to bread and it was known that Panera were eyeing for a 12% premium on the
    improve the performance of existing stores. 30 market average value.

    Since these initiatives were just undertaken, Panera was yet to Hence, it made more sense for KLG to ahead with the buyout quickly
    realize their full economic benefits and they eroded Panera Bread’s before market factored in the premium figures and before they had
    profit margins. competition.

    Hence they were not appropriately factored and brought down the Panera Bread’s revenues propelled to $2.8 billion, growing by 4.2% on
    valuation of Panera bread. account of robust same-store sales and new restaurants.
    Recommendation
    Go Ahead with the LBO

    There was a leak in the public


    Panera bread had started a lieu of value- regarding the potential buyout of
    improving services, such as Panera 2.0 Panera bread and it was known that KLG was offering a 7.44x Debt to
    and a new delivery initiative which were Panera were eyeing for a 12% EBITDA multiple which was a
    designed to improve the performance premium on the 30 market average premium when compared to the
    of existing stores. Since these initiatives value. Hence, it made more sense for
    were just undertaken, Panera was yet to industry average of 6.7x. This was
    realize their full economic benefits and
    KLG to ahead with the buyout quickly an excellent exit strategy for
    they eroded Panera Bread’s profit before market factored in the Panera Bread.
    margins. premium figures and before they had
    competition.
    Thank
    You!

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