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Tickers in this Article: IRG, EAT, BOBE, FRS
Ignite Restaurant Group (IRG) recently inked an agreement with private equity firm Golden Gate Capital to buy the latter's Italian restaurant chain Romano's Macaroni Grill for $55.0 million. This all-cash deal will be financed through a $50 million upsizing of the company's existing credit facility.

The acquisition is expected to be completed late in the second quarter of 2013 and Ignite management expects the deal to be accretive to earnings in 2014.

Why Romano's Macaroni Grill?

First opened in 1988, Romano's Macaroni Grill offers authentic Italian delicacies. The restaurant's open kitchen, brick ovens, opera singers and the honor system house wine combine to create a rich dining experience.  Apart from its restaurants, the brand also extends a packaged food line featuring the dishes available at the restaurant. Also, the brand offers other services like catering and online ordering.

The chain currently owns and operates 186 units and has 5 franchises across 36 states. Additionally, the brand franchises an additional 19 units throughout nine U.S. territories and foreign countries.

Earlier, this chain was owned by Brinker International Inc. (EAT). On Dec 18, 2008, Brinker sold its majority stake in the chain to Golden Gate Capital. In 2012, Romano's Macaroni Grill generated approximately $385.0 million in revenues.

According to Ignite, Romano's Macaroni Grill operating model is similar to Ignite's existing brands. Further, strong brand recognition, sound business model and solid revenues make Romano's Macaroni Grill a lucrative acquisition target.

Significant Synergy to be Derived

Ignite Restaurant currently owns and operates 129 Joe's Crab Shacks and 15 Brick House Tavern + Tap. Post-acquisition, Ignite will boast three casual dining brands.

Ignite expects to derive significant synergy off this deal and remains optimistic of owning three high quality casual dining brands and generating nearly one billion in revenues in the near term.  

On the other hand, Romano's Macaroni Grill should benefit from this combination as its new owner Ignite has experience of improving operating performance of an acquired brand. For example, Ignite has historically enhanced operating performance at Joe's Crab Shack.

We also believe that this deal is strategically positive. We expect Romano's Macaroni Grill to be well- managed by its new owner.

Merger & Acquisition: An Industry Trend

Merger and acquisition activity is gaining momentum in the restaurant sector. The companies are looking at potential business partners to foray into different zones and unlock value.

Some latest acquisition deals that are worth mentioning include the buyout of Caribou Coffee Company by JAB Group and Bob Evans Farms Inc.'s (BOBE) divestiture of Mimi's Café concept to LeDuff America Inc. Yet another company, Frisch's Restaurants Inc. (FRS) also sold its Golden Corral operations last year.

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