FAT Brands has a deal to acquire Global Franchise Group for $442.5 million, which if completed would add Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker to Fatburger’s parent company.
The sellers, Serruya Private Equity and Lion Capital, approached FAT Brands about the sale in March, CEO Andy Wiederhorn said.
“This is a directly negotiated deal. Private equity came directly to us to negotiate this transaction. Our track record for completing transactions drama-free, that word has spread,” he said.
What does being “drama-free” mean? “I think it’s just doing what you say you’re going to do, don’t change the terms at the last minute. That’s what everyone wants,” he said.
“This was a very straightforward deal. We negotiated it and completed it on a tight time frame. For us it was a great opportunity to add amazing brands to the portfolio with a lot of upside.”
FAT does not own a pizza brand, a dessert/coffee/cookie brand, the pretzel ice cream and “all that stuff,” he said. “It’s very complementary to our portfolio.” Expected to close by the end of July, the deal would triple the size of the company, to $1.4 billion in systemwide sales, and allow FAT to exit “once and for all from small-cap land,” he said, meaning market capitalization.
“It’s also interesting that we’re adding a manufacturing business to the portfolio, which come with Great American Cookies. About a third of the income comes from the manufacturing business, where they supply the franchisees with cookie dough or pretzel mix to make in the restaurants, so franchisees save money. For us there’s tremendous excess capacity,” he said.
If it closes, the deal will be the largest restaurant acquisition by a franchisor to date this year. Wiederhorn already had a relationship with Serruya Private Equity principal Michael Serruya, who invested in FAT Brands during its initial public offering in 2017.
FAT’s stock price hovered around the $13 per share mark until June 28, when it hit $15.80. Today it traded at $14.73. FAT Brands posted a $15 million loss in its most recent fiscal year, and two industry analysts covering FAT expect the company to post another loss for 2020 and then a profit of $18,000 in fiscal 2021, according to Simply Wall St., based on a 163 percent year-on-year growth rate.
FAT Brands will pay $25 million in common stock to Serruya but not Lion; $67.5 million in preferred stock to both firms; and the balance, $350.5 million, in cash on hand and from an upcoming bond issue.
Serruya and Lion bought Global Franchise Brands in 2018 and this sale marks a “nice profit” for them, he said. “Everybody has a life cycle to their investment. This is on the shorter end of private equity; they bought this three years ago. First they organized the business, then they went through COVID, then I think they thought it was the right time strategically” to sell.
FAT Brands owns nine restaurant brands: Fatburger, Johnny Rockets, Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, Elevation Burger, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses, and franchises approximately 700 units worldwide.
With the acquisition of Global Franchise Group, FAT would have more than 2,000 franchised and company-owned restaurants around the world. Wiederhorn expects the acquisition to eventually increase annual EBITDA or cash flow by about $40 million, to roughly $55- to $60 million.
Wiederhorn says he’s not done acquiring yet. “As I hinted before, we are just getting started this year. Talk to you in a couple weeks.”