Ruth's Chris hooks Mitchell seafood restaurants as growth vehicle

Nation's Restaurant News, Nov 19, 2007 by Catherine R. Cobb

HEATHROW, FLA. -- With the purchase of 19 upscale seafood restaurants and three steakhouses from Cameron Mitchell Restaurants LLC for $94 million, Ruth's Chris Steak House is wisely diversifying its high-end market position with an aquatic foray as sales at the company's namesake concept have grown sluggish, industry analysts assert.

The deal, which is expected to close in the first quarter of 2008, would give 114-unit Ruth's Chris an established stake in the upscale-seafood category by adding to the company's portfolio restaurants that operate under the names Mitchell's Fish Market and Columbus Fish Market. The three steakhouses bear the names Cameron's Steakhouse or Mitchell's Steakhouse. The deal also includes two Mitchell's Fish Markets that would open before year-end. Ruth's Chris said the acquired group should have 2008 revenues of $98 million.

Once the deal is consummated, Columbus, Ohio-based Cameron Mitchell Restaurants still would operate 11 restaurants in nine states under such names as Cameron's American Bistro, Molly Woo's, Martini Italian Bistro, M, and Marcella's.

"As a public company, the overall objective is to grow the brand, but Ruth's Chris' engines stalled in the last year," said Craig Weichmann, a veteran restaurant analyst and owner of the Dallas-based investment boutique Weichmann & Associates. "So the best move was to add a growth vehicle. Craig [Miller] smartly did so, paying a reasonable price of seven times earnings. It is a good fit size-wise, too--not too big, not too small."

Craig Miller, chairman, president and chief executive of Ruth's Chris, said the Heathrow-based chain long has been on the lookout for a good strategic acquisition--even before sales slowed at Ruth's Chris--but the market has been tough in the last couple of years.

"Valuations have been inflated due to all of the private-equity deals going down, but currently the market is better," he said, noting that the deal had been in the works for about three months, since investment-banking firm Piper Jaffrey approached him about the acquisition.

"The opportunity presented itself, so we went for it," he said. "Look, we go through economic cycles, and this one has a lot of pressure on consumers. But looking in the long run, demographics look positive towards the higher-end dining experience. [The market] lacked a high-end national player in seafood, and we think we can be part of that solution."

Cameron Mitchell, president and founder of his namesake company, said that while four or five other interested parties had bid on the seafood restaurants, it was clear early on that Ruth's Chris represented the best strategic fit.

"Our seafood restaurants were clearly ready for national expansion, and we couldn't do that and focus on building other brands," Mitchell said. "Ruth's Chris is the one to take [the Fish House group] national."

Mitchell will serve as a consultant to Ruth's Chris on the acquired restaurants for three years, the buying company said. The existing Mitchell's Seafood operating team will stay on with the restaurants, although they will be supported out of Ruth's Chris headquarters.

"We don't anticipate changes, though," Miller said. "This is a fully developed concept, and the restaurants are extremely well-run."

Miller said the seafood restaurants are compatible with Ruth's Chris units, with average annual sales volumes of $4.3 million per unit. Sales at Ruth's Chris restaurants average $5.7 million annually at company-operated units and $5.3 million at franchised outlets.

According to Miller, Ruth's Chris will add three to four FishMarket restaurants next year, and grow the acquired concept by a combined rate of 15 percent to 20 percent annually. Most of the seafood restaurants are located in the Midwest, but the company expects to open a Stamford, Conn., location as well as one in Jacksonville, Fla., by year-end. The seafood chains already have two Florida locations.

Ruth's Chris does not plan to add more seafood to the menu of its namesake steakhouses as a result of the deal, Miller said. However, he acknowledged that there could be some seafood purchasing synergies between the chains.

The acquired Cameron's steakhouses will continue to operate under that identity, Miller said, adding that it was undecided whether Ruth's Chris would expand that brand.

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"They are already in markets we operate Ruth's Chris restaurants in, but they are complementary, not competitive," he said. "They are successful in their own right. We will learn from what they do."

The acquisition is to be funded through Ruth's Chris' existing credit facility, the company said.

Mitchell, who retained Piper Jaffray in early June to find a buyer for the seafood group, said its management will benefit from the sale to Ruth's Chris.

"This will give them the opportunity to achieve their full potential and will give them increased career opportunities," he said.

Mitchell acknowledged that despite "depressed values" in the restaurant marketplace, he feels the $94 million was an excellent price for the restaurants.