Olive Garden parent Darden Restaurants said on Wednesday after the market close that it will acquire Chuy’s Holdings, a Tex-Mex restaurant chain, for $605 million. Darden investors aren’t so thrilled. While Chuy’s stock soared 48% on the news in Thursday trading, Darden shares dropped 3.5%.
Investors are likely concerned that Darden is overpaying for Chuy’s. The deal values Chuy’s shares at $37.50 each, a 40% premium to the 60-day volume-weighted average price. Before Thursday’s jump, Chuy’s stock has slumped 37% over the past 12 months.
The purchase price represents a 10.3 times multiple of Chuy’s transaction-adjusted earnings before interest, taxes, depreciation, and amortization for the latest reported 12 months. Darden’s own stock is valued at 9.5 times past-12-month Ebitda, according to FactSet.
Not considering the $50 million to $55 million costs associated with the acquisition and integration, Darden expects the deal to have no impact to its fiscal 2025 earnings and boost the fiscal 2027 earnings by 12 to 15 cents. Wall Street currently expects 2027 earnings to be $11.35 per share.
Darden’s already owns nearly a dozen restaurant brands including Olive Garden, LongHorn Steakhouse, and Yard House, with a total of over 2,000 locations. Chuy’s, with roughly 100 restaurants, will be the first Mexican chain in its portfolio.