Any time an industry has a potentially transforming merger, the question arises as to whether it's the first of many. Such is the case now for restaurants, as Miami-based Burger King (BKW) and Canada's Tim Hortons (THI) pursue a merger to create a burger, coffee and pastries seller with a current combined market cap of $22 billion.
But within the group, other compelling takeover candidates arguably are few in number, with only a handful appearing both reasonably affordable and of a style that could quickly -- conceivably -- enhance the prospects of an acquirer.
The Burger King-Tim Hortons deal takes advantage of favorable tax rules by locating the combined corporation's headquarters in Canada, a move known as an "inversion," while also forming a food seller that will have more than 18,000 units. Burger King has gotten what's likely the best inversion candidate there is; the vast majority of chains of this size are based in the U.S., making the merger extremely difficult if not impossible to replicate. Taxes aside, from an operational standpoint the burger-store franchisor is tying up with a coffee-and-doughnuts name that has ample room to expand from its moderate base in the U.S.
[See related: Boycott talk taints Burger King deal]
For others out there, any deals would be less about tax rates than about growth. Many chains, amid ever-heightening competition and always-inconsistent eating habits, have struggled to increase revenue beyond a low-single-digit pace, and customer counts have flattened or fallen. Fast casuals, the space Chipotle (CMG) inhabits, have been the best, but even they're not without woe, as Panera Bread's (PNRA) traffic troubles illustrate.
Some merged entities already exist: For instance, Darden Restaurants (DRI) owns Olive Garden, The Capital Grille and others, while DineEquity (DIN) has Applebee's and IHOP. Others did, but now don't -- Wendy's (WEN) used to control Tim Hortons and was once merged with Arby's. Here, for speculative purposes only, are a few public companies that might have a greater chance of getting a look from a buyer in the future, in order of largest market cap to smallest.
Dunkin' Brands (DNKN): With a market value of $4.6 billion and 18,000 locations of various types, almost entirely franchised, it would allow for a gigantic move into coffee, muffins and doughnuts via Dunkin' Donuts and Baskin-Robbins. It's been traded around before. Everybody wants to be in breakfast, and Canton, Mass.-based Dunkin' is a player there. Competition, naturally, is tremendous -- a recurring theme for almost all restaurants. Revenue last year was $714 million.
Panera Bread: The market cap of $4.1 billion means this St. Louis-based bakery operator would have to be purchased by someone with plenty of capital, as well as fight. It's got about 1,800 stores, and according to industry research firm Technomic, it's the largest bakery chain in what's the single-biggest fast-casual category. Traffic has been going in the wrong direction, though the company hopes investing in automated ordering will help. Problem: Many places sell bread and sandwiches. Revenue was $2.4 billion in 2013.
Buffalo Wild Wings (BWLD): It's built out to more than 1,000 stores on the popularity of hot wings, TV sports and beer. So the Minneapolis chain has plenty in its favor, including investments in craft pizza and fast-casual tacos. However, meals aren't cheap here, and as it marches toward what it believes can be 1,700 North American stores, it has to keep up quality. Wings can be found about everywhere these days. As can beer. And TV. Still, its market value of $2.8 billion suggests those worries might not be a complete deterrent. Last year's revenue was $1.3 billion.
Jack in the Box (JACK): Here's a San Diego-based company with both fast-food burgers and fast-casual Tex-Mex, and a market cap of $2.3 billion. Of its 2,900 stores, almost 80% are Jack in the Box, which also sells all-day breakfast and tacos, and the rest are Qdoba Mexican Grill. Burgers, yet not McDonald's (MCD)? Breakfast? Fast-casual? Amazing. Revenue was $1.5 billion last year.
Fiesta Restaurant Group (FRGI): This Addison, Texas, company with more than 300 locations is in a good place. Two, really. Its Pollo Tropical division sells Caribbean-influenced fare, while Taco Cabana is in the Mexican-style arena. Clearly, it's not alone in this. However, the optimists will tell you growth will be there for all of them. It has a market cap of $1.3 billion, and revenue was $551 million last year.
Krispy Kreme (KKD): The Winston-Salem, N.C., doughnut chain has had some great days as a public company and some utterly terrible ones, remaining something of a reclamation project. But it's got coffee and breakfast, so its $1.1 billion value might one day draw interest. It's not just a lower-priced Dunkin' – it's much, much smaller. Most of its 800-plus stores are outside the U.S., and it sells some of its treats through grocery stores and other outlets. Revenue was $460 million a year ago.
Einstein Noah (BAGL): Now we've gotten "cheap," with a market cap of about $250 million. The Lakewood, Colo., seller of bagels and breads had around 850 stores at the end of 2013, and its latest annual revenue was $435 million. But wait -- David Einhorn's Greenlight Capital owns 38% of the company, so nothing happens without him. That said, his firm used to have two-thirds of it. And finance types aren't opposed to dealmaking, as we know from Burger King and elsewhere.
Who might buy? About anyone with cash or credit. But it would be easiest, financially, for the top names -- McDonald's, Yum Brands (YUM) and Starbucks (SBUX). That doesn't remotely mean they will, but they've easily got the power to remake the sector if they choose.