Darden Announces Acquisition of Ruth's Hospitality Group in Curious but Fairly Priced Strategic Move

We're not entirely sure why narrow-moat Darden Restaurants has elected to purchase 154-unit Ruth's Hospitality group, but at least it doesn't appear to be overpaying for the privilege. The acquisitive full-service operator intends to add the upscale steakhouse chain to its lineup at a valuation of $715 million after a planned cash offer of $21.50 per share, representing a 34% premium to the steakhouse's May 2, 2023, closing price and 9.4 times trailing EBITDA. Given the muted scale of the deal (with Ruth's clocking in at just shy of 4% of Darden's intraday market cap and at 5.2% of fiscal 2022 sales) and a reasonable multiple—PitchBook data suggests a median restaurant acquisition multiple of 12.4 times trailing EBITDA over the past five years—we don't anticipate any consequential changes to our $143 fair value estimate for Darden or to our Standard capital allocation rating. Deal closure is expected in June and without external financing.