Reality TV: Auctioning the buzz

Buzz sells. When people are talking, products move. And if the buzz gets loud enough, the din might even move whole companies.

Over the last several years, consumer products makers have tried to create buzz by channeling more advertising dollars toward brand placement on reality television shows. Such appearances are particularly helpful for smaller companies trying to boost sales. Better sales usually mean higher prices at the auction block.

So can companies use TV appearances to help juice their auctions? The evidence is circumstantial and perhaps thin. For example, several restaurant chains have, in recent years, hit the block after being featured on reality TV shows. While some observers see a connection, it is impossible to prove that the processes represented concerted efforts.

However, there is little doubt that a guest spot on a popular program can help gin up excitement. "To me, there is no question that it gives prominence to a company, that it triggers investor interest," says Pepper Hamilton LLP partner Steven London. "Reality TV shows are so popular, companies are looking to get on that bandwagon."

Food figures prominently on that bandwagon. Start with Elgin, Ill.-based food equipment maker Middleby Corp., which on Dec. 31 acquired oven maker Viking Range Corp. of Greenwood, Miss., from its original owners for $380 million in cash. Viking's namesake brand is constantly seen on cooking shows such as Fox Broadcasting Co.'s "Masterchef."

Viking produces high-end appliances and likely would have been an attractive target even without the recognition generated by regular broadcast exposure -- but it certainly didn't hurt.

Leo Kivijarv, the vice president of research for Stamford, Conn., media research firm PQ Media LLC, says he has never seen a direct connection between television brand placement and M&A, but he does not dismiss the notion entirely. "There is no direct cause and effect, but there is a link," says Kivijarv. "In the M&A marketplace, you have to look at so many things."

Kivijarv added that smaller brands that go with product placement on television shows will more likely become acquisition targets as opposed to those that are owned by conglomerates.

"For the large brands that are doing product placements, it does not affect M&A," he says.

According to PQ Media, brand placement in the U.S. television and film market expanded at a 12.8% compound annual growth rate between 2006 and 2011 and is expected to record an 11.2% CAGR through 2016 across all major media platforms.

"It really started to explode with the change in television," Kivijarv says. "What's occurred is that everyone is starting to do it."

Innovation Capital LLC managing director David Hill says one factor driving the increase in television brand placement is the perception that being seen on TV means high quality, especially for smaller brands. After all, some of the best-known products on the planet are featured on some of the most-watched shows on TV.

For example, Coca-Cola Co. boasts perhaps the most prominent product placement: Glasses emblazoned with its logo are fixtures in front of the judges on Fox's highly rated "American Idol."

Kivijarv says he can't say how much Coca-Cola exactly spends for its brand placement. "Nobody really wants to talk about how much is being spent," he notes.

Still, if it's good for Coke, it might be good for establishments that serve the iconic soft drink. In fact, restaurants offer the most compelling evidence for the proposition that reality TV can help auctioneers.

The process starts with better traffic. Moe's Southwest Grill reported a jump in sales immediately after it appeared on CBS Corp.'s "Undercover Boss" on Jan. 18. The 60-minute show features CEOs, or other senior executives, discretely working frontline jobs in their companies to give them a chance to find out firsthand what works in the field. Moe's told Nation's Restaurant News that the first day immediately following the Jan. 18 episode that some of its franchisees reported their sales soared by as much as 50%.

Moe's is not on the auction block, but it is ripe for a private equity exit along with a handful of other restaurant chains. Atlanta firm Roark Capital Group acquired Moe's in 2007 and Cinnabon Inc. in 2004. The latter was the setting for "Undercover Boss" on Nov. 16.

"Older chains will do anything to boost visibility and sales in anticipation of an exit by its private equity owners," says Grandwood Capital LLC managing director Adam Birnbaum. "They know any buyer will focus on this as an indicator of the health of the system and the chain."

Boston Market Corp. may offer another example. Sun Capital Partners Inc. acquired the chain in 2007. Its boss went undercover for the cameras on Feb. 1.

In fact, "Undercover Boss" has featured several restaurant chains since the show's debut in February 2010. Out of the 53 episodes that aired through Feb. 1, 11 dealt with restaurants. At least two of those chains, Checkers Drive-In Restaurants Inc. and Johnny Rockets Group Inc. ended up on the block. Both chains hired San Francisco's North Point Advisors LLC to help with the sales process.

Wellspring Capital Management LLC-backed Checkers of Tampa, Fla., began its sale process in July 2012. It also enlisted Harris Williams & Co. for advice. Meanwhile, Aliso Viejo, Calif.-based Johnny Rockets, which is owned by Red Zone Capital Management Co., went on the block in the beginning of 2013. Both targets are expected to attract mostly private equity interest.

Hooters of America Inc. was the first restaurant chain to appear on "Undercover Boss" in February 2010 right around the time it hired North Point to look for buyers. The Atlanta chain was acquired by Chanticleer Holdings Inc. and KarpReilly Capital Partners LP for about $250 million in early 2011.

The timing of the Hooters transaction -- coming on the heels of its TV appearance was purely coincidental, according to a person familiar with the matter. North Point did not return calls seeking comment for this article.

Some industry watchers say they suspect there is a connection between auctions and "Undercover Boss."

"A bunch of us absolutely think that is the case," according one industry source. "Whoever wants to sell themselves uses it as free PR."

"Undercover Boss" has also featured companies in other sectors that ended up getting sold. For instance, Madison, Wis.-based indoor water park operator Great Wolf Resorts Inc. was on the show in October 2010 and hired Deutsche Bank Securities Inc. less than a year later to look for buyers. Apollo Global Management LP bought Great Wolf in April 2012 for $262 million after winning a bidding war over rival private equity firm KSL Capital Partners LLC.

In June 2011, eBay Inc. completed its $2.4 billion acquisition of King of Prussia, Pa.-based e-commerce company GSI Commerce Inc. The latter was on "Undercover Boss" in March 2010.

All of these auctions may simply represent the old correlation/causation question. The proximity of sales to reality TV appearances looks like causation, but it may all be coincidental.

In any event, a high-profile TV appearance doesn't guarantee success. Atlanta sandwich maker Arby's Restaurant Group Inc. was featured on NBC's "The Apprentice" in 2006. Two years later, the chain was acquired by Wendy's Co. for $2.3 billion.

That acquisition did not work out for Wendy's. In 2011, Arby's was sold to Roark for about $320 million.