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Restaurant Brands International Inc.'s stomach appears to be growling.

Reuters reported late Monday that the owner of Burger King and Tim Hortons approached fried-chicken chain Popeyes Louisiana Kitchen Inc. The news propelled Atlanta-based Popeyes to close 7.3 per cent higher at a record $70.82 apiece, giving it a market value of $1.5-billion.

The New York Post later reported that deal talks might have collapsed months ago. Either way, Popeyes' shareholders and its management would likely welcome a takeover at a premium to its current levels. But assuming Restaurant Brands is moving into acquisition mode, is it really the best fit?

If 3G Capital-backed Restaurant Brands has its heart set on chicken and biscuits, a potentially more attractive alternative is Bojangles' Inc. At $750-million, the Charlotte, N.C.-based restaurant operator and franchiser has a similar earnings profile to Popeyes but trades at a noticeable discount. Here's a comparison of the two, by the numbers:

2017 estimated revenue$268.7-million$587.8-million
2017 estimated EBITDA$95.2-million$87.3-million
2017 estimated free cash flow$49.8-million$46.1-million
Transaction value*$1.95-billion$1.2-billion
Enterprise value/EBITDA20.5x13.5x
2018 earnings accretion+1.80%3.30%

Source: Bloomberg

* Based on a 30-per-cent premium to closing prices on Feb. 10  
+ Includes 30-per-cent premium and assumes deal is 50-per-cent funded with cash and accounts for $50-million in synergies

If Restaurant Brands is comfortable buying Bojangles', which has a smaller national footprint and is less dependent on franchising than Popeyes, such a deal would actually be more accretive to its earnings. Bojangles' majority owner Advent International Corp. would likely welcome such a transaction, especially since the private equity firm sold shares in an initial public offering and follow-on transaction at levels below the company's closing price Monday of $20.55.

According to the New York Post, 3G's acquisition checklist includes a brand with an American, but not global, presence and one that doesn't compete with Burger King or Tim Hortons. Mexican chain El Pollo Loco Holdings Inc. -- which, like Bojangles' counts a private equity firm as a major shareholder -- is another potential alternative.

The Costa Mesa, Calif.-based company trades at roughly 8.8 times its forward EBITDA, and its share price has halved in the past two years partly due to declining same-store-sales -- a trend that 3G could help reverse.

And if Restaurant Brands is willing to lift its exposure to burgers, an option is Sonic Corp., which claims to be America's dominant drive-in restaurant business. The Oklahoma City-based company's recent struggles have weighed on its valuation and it's losing its president and chief marketing officer next month, creating a catalyst for change. A deal would also likely pass muster with regulators, because even if Burger King and Sonic combined their market share, it'd still be roughly half that of McDonald's Corp.

Assuming all-stock transactions (or even a mix of stock and cash) at a 30-per-cent premium, and including synergies of $50 million, deals for either El Pollo Loco or Sonic would be immediately accretive to Restaurant Brands' earnings, according to data compiled by Bloomberg.

Whatever happens, organic growth at Restaurant Brands hasn't been particularly impressive. That makes an acquisition all the more likely to be well-received by its shareholders, which include Bill Ackman's Pershing Square Capital Management LP and Warren Buffett's Berkshire Hathaway Inc. (Already on Monday, Restaurant Brands shares added to their fourth-quarter earnings bounce, closing 4.6 per cent higher at a new record.)

For now, undeclared winners should hold off on celebratory chicken dinners.


Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.