Buffalo Wild Wings Gets a Mouth-Watering Buyout Bid

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In this segment of the MarketFoolery podcast, host Mac Greer, Motley Fool Director of Small-Cap Strategy Bill Mann and Matt Argersinger of Million Dollar Portfolio consider the future of Buffalo Wild Wings (NASDAQ: BWLD).

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The fact that longtime CEO Sally Smith, who had a great run for many years, has recently been pushed out changes the equation for this possible sale of the restaurant chain. They also discuss the restaurant industry more broadly, the unique difficulties those chains can face, and which currently private chains they'd love to see go public.

A full transcript follows the video.

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This video was recorded on Nov. 14, 2017.

Mac Greer: Guys, shares of Buffalo Wild Wings up big on Tuesday on news that a private equity firm had made an offer to buy the chain. According to reports, Roark Capital had made an offer, more than $150 per share. Bill, that's some good cash, given BWLD is trading around $117 per share. Or, was.

Bill Mann: Immediately moved up to nearly the price.

Greer: So, what do you make of that?

Mann: What I make of it is, given the fact that Sally Smith, the longtime CEO who's really been the driver behind Buffalo Wild Wings' growth up until now, and it really has been a phenomenal story up until about the last two years, the market is saying that this is an offer that's likely to be taken. It will certainly be meriting a consideration in the boardroom. And maybe it's a good deal. I have a hard time with the fact that Sally Smith has been essentially pushed out after years and years of outperformance. This is just another one of the signs of how hard it is to be a CEO of a public company, or to be a public company in general.

Greer: And restaurants in particular seem to have, it's a tough business. Is there more of a sell-by date when it comes to restaurants? As an investor, if you own a restaurant, do you keep it on a much shorter leash? Because we can all think back to the Boston Markets, you think of Chipotle's (NYSE: CMG) recent problems. Obviously, stocks go up and stocks go down, but restaurants seem to be a particularly fickle business.

Mann: Matt may have a slightly different take on this, but I think with restaurants, brand and experience is everything, but really, the brand is so powerful with restaurants. But you can't put too much power into the brand, put too much value into the brand. Chipotle is a great example. A few years ago, I don't know if you all remember this, but suddenly Chipotle had no access to the pork that they used to make carnitas, and they just put a sign up at all the stores saying, "Sorry, we have no carnitas." And that was maybe the canary in the coal mine for Chipotle, the fact that their supply chain was stretched enough and weak enough that a little problem is going to cause big problems for them, or, a little challenge, I would say. So, yes, you have to be very careful in putting too much value into the brands of restaurants, because they can disappear [snaps] like that.

Matt Argersinger: That's such a great point. I had totally forgot about that pork issue from several years ago. If you'd really dug into that, you would have realized that Chipotle spreading out across the country with their supply chain was going to cause a lot of unforeseen challenges that they hadn't dealt with before.

Mann: Yeah. It's easy to get an amount of product from one farm. But as you grow, you need more and more suppliers. And it's really hard. It's an enormous challenge. And the thing that I take from Chipotle, which I appreciate, and I still do appreciate, is that they take a lot of pride in their supplies and their food and everything else, but it hurt them. And that's a hard reality with restaurants.

Greer: Do you have a favorite restaurant stock, or a restaurant you would like to see go public that may not be public yet?

Argersinger: We live in the D.C. area, and one restaurant chain, I don't know why it's called a chain, because I think there's only half a dozen, but there's Matchbox, which is --

Greer: It's so good.

Argersinger: -- really great, I think it's local, I think they don't have any restaurants outside the DC area, but it's great food, great atmosphere. It's way too small to probably consider going public. But if there was one I would like to see go public in the future ...

Mann: To me, the obvious answer is Chick-fil-A.

Argersinger: Oh, yeah.

Greer: Love Chick-fil-A.

Mann: Chick-fil-A is so, so, so good!

Greer: They have one at Reagan National Airport now, and I am willing to pay the $6 parking to go to the Chick-fil-A at the airport. Is that a cry for help or what?

Mann: [laughs] It used to be a Dulles, and maybe this is a sign of the times, Dulles had, inside of the security area, the only Starbucks that was on my commute to my old business. So, my friend and I would drive, he would drop me off, I would go in through security, buy Starbucks, come back out, and he would have done a loop, and we'd get in the car and go to work. So, yes, I understand you perfectly.

Greer: You have topped me. That's outstanding.

Mann: Well, this is before 2001. That was not as much of a challenge as it is now. You weren't de-belting and things like that to get your coffee. Yeah, so, Chick-fil-A would be fantastic. There's actually a restaurant, it's a Taiwanese restaurant, they just started opening shops in the West, it's a dumpling place called Din Tai Fung. And for a while, it was the cheapest Michelin starred restaurant in the world. And they've begun opening additional stores. And it's phenomenal. And not only is it phenomenal, but the price point is such that, because it's dumplings, they're all pre-made, so you can literally sit down and eat and be paid and done in 20 minutes.

Greer: I like that.

Mann: So, as a customer, it's fantastic. But as a business, that's pretty awesome, too.

Argersinger: As we talked about restaurants we would like to see go public, I would say, the one thing that this Buffalo Wild Wings deal emphasizes for me, and we talked about the challenges that Chipotle has faced, what Bill said earlier, it's so hard to be a public company nowadays, especially if things aren't going your way, the scrutiny you have to deal with. And I worry that this might become a trend. Either more companies go private, or less companies go public. And as public investors, that's not something we'd like to see, but it's probably a trend.

Bill Mann has no position in any of the stocks mentioned. Mac Greer owns shares of Chipotle Mexican Grill. Matthew Argersinger owns shares of Chipotle Mexican Grill and Starbucks. The Motley Fool owns shares of and recommends Buffalo Wild Wings, Chipotle Mexican Grill, and Starbucks. The Motley Fool has a disclosure policy.