The parent company of IHOP and Applebee's wants to buy another chain. Here are 4 things the CEO says he's looking for in an acquisition target.

Hollis Johnson/Business Insider

Dine Brands CEO Steve Joyce shared what he's looking for as he targets chains for an acquisition.

• Dine Brands CEO Steve Joyce told Business Insider the company is looking for a new chain to join IHOP and Applebee's as a sister brand.
• Joyce broke down the four "filters" that Dine Brands is using to decide which chains to consider acquiring.
• Dine Brands is looking for a chain with mass appeal that it can expand to 1,000 units and that fits with rising trends across the United States.

Applebee's and IHOP are preparing to welcome a new sister brand into the family.

Dine Brands CEO Steve Joyce told Business Insider in May that the company was on the hunt to acquire a new brand. Last week, he broke down the "filters" that the company is using to sort out exactly which chains would be a good fit.

"The easy thing would be to say, well look, our stock is really undervalued, let's just buy a bunch of stock," Joyce said. "That's not the company I want to work in. And that's not the company anyone else wants to work in."

To keep employees engaged and grow shareholders' returns, Joyce believes Dine needs to reinvest in growth. And, that means acquiring new brands.

"When I started at Choice [Hotels, where Joyce was CEO from 2008 to 2017], I had nine brands. When I left there were 13," Joyce said. "When I started they were less than 5,000 hotels. When I left there were over 7,000. That's pretty fun. And, we can do the same thing here."

Here is what Joyce says he is looking for in chains that Dine Brands is targeting for acquisition:

1. Mass appeal.

IHOP and Applebee's are far from cutting-edge when it comes to trends. While Joyce wants the new chain to be in a category that is more up-and-coming than casual or family dining, the brand still needs to be mainstream enough to win over a significant portion of the American public.

Hollis Johnson/Business Insider

Dine Brands' newest chain will likely be a hit trendier than Applebee's, but still have mass appeal.

2. Ability to expand to a thousand locations.

Dine Brands is eyeing concepts that have 75 to 100 locations, but with the potential to grow to 10 times that size.

"I'm not going to go if it's not mass appeal," Joyce said. "If we can't get to a thousand units, it doesn't do us any good."

3. A certain degree of trendiness.

"We're looking at a lot of different brands, whether it be Mediterranean, whether it be salads ... different types of cuisines that are healthier and provide mass appeal," Joyce said.

Fast-casual chains are of particular interest to Joyce. While the category, which includes chains like Chipotle and Panera Bread, has exploded over the last 10 years, the fast-casual business is a very small percentage of the overall restaurant industry.

"Casual dining is a big segment. Family dining is a big segment. Fast casual is teeny," Joyce said. "We all spend all our time talking about it, but it's not the restaurant business."

However, with the right brand, Joyce feels there is an opportunity for Dine to change that - and potentially become the dominant player in the fast-casual industry.

4. The right team.

Dine is looking for brands that already have franchisees who will stick around and help the chain continue to grow after an acquisition. In general, Joyce has emphasized the importance of building a collaborative culture at Dine Brands over the last year. The new brand's leadership team would have to fit into this culture.

"Everybody wants to be part of something different, right?" Joyce said. "They don't want to be part of some elaborate corporate empire that doesn't feel or bleed or breathe. Everybody ... wants to feel like they've got a role.

Read our full interview with Dine Brands CEO Steve Joyce »