"Del Taco" soon will be sold

Del Taco Restaurant

 

Del Taco is exploring a potential sale and already has interested buyers from investment firms and other restaurants, according to reports from Street Insider and Restaurant Business. Some of the interested buyers include Applebee's owner Dine Brands Global, The Habit Restaurants, Chuy's and El Pollo Loco, Fiesta Restaurant Group, and a few private equity firms.

 

The chain's stock rose 4% following the report Tuesday, but its shares are still down 13% over the past year, according to Restaurant Business. Analysts have posited that Del Taco has been undervalued since going public in 2015, which may explain the numerous chains and investors interested in an acquisition. Del Taco may be seeking a sale to assist with its recent sluggish performance and help find its footing in the increasingly competitive digital era of dining.

 

With only 583 locations, however, the Mexican QSR chain has still managed to outperform its larger competitor Taco Bell during the last three years, according to Restaurant Business. The two chains have made different branding and marketing decisions recently, with Del Taco adding plant-based protein from Beyond Meat that sent it sales soaring. Taco Bell, on the other hand, has dedicated more menu space to vegetarian offerings and steered clear of plant-based meat.

 

Neither chain is king of the Mexican QSR world in terms of consumer sentiment, however, with the title recently being bestowed on Chipotle. The chain has also opted against adding plant-based meat while investing heavily in technology and unique marketing campaigns, including a partnership with TikTok that encourages contestants to post videos dancing with its burrito bowl takeout lids. Del Taco may have the competition beat when it comes to value, however. In the same study that dubbed Chipotle America's favorite, the chain topped the value ranking, though Chipotle was first for food quality, overall cleanliness and healthy options.

 

The company's exploration of a sale comes during a hot season of M&A for the restaurant segment. There have been a number of takeover bids and restaurant sales recently, with Elite Restaurant Group recently acquiring non-franchised Project Pie locations, Ancora Advisors' attempt to takeover J. Alexander's, and hedge fund Starboard Value flipping Darden Restaurants' board. It's unclear how an acquisition of Del Taco would impact the broader Mexican QSR space.

 

If the company gets snapped up by a firm with deep pockets like Dine Brands Global or a chain with strong expertise in the segment like El Pollo Loco, it could be better positioned to catch up to rivals.