FAT Brands acquisition pace too slow for CEO, plus more Dealmakers

FAT Brands’ acquisition of the 44-unit Elevation Burger in June added a "significant East Coast presence, which Fatburger does not have," says Andy Wiederhorn, CEO of the LA-based franchisor.

He’s had a tough time getting financing, which has constrained FAT Brands’ acquisition pace. "It’s been a slower build than we want, meaning we have a very, very full pipeline of brands we would like to acquire and we are having to work a little bit harder than usual on the financing side of things," he said. "It’s important to us that we get the right capital structure."

After a transaction failed last year, Wiederhorn said, FAT Brands borrowed $20 million from two investment funds managed by Sardar Biglari, Cracker Barrel’s largest shareholder, after Biglari sold some of his Cracker Barrel holdings. Wiederhorn called it an "expensive bridge loan," which accrues interest at an annual fixed rate of 20 percent, but said it allowed for flexibility. Biglari’s loan to FAT Brands was used to repay its existing $16 million term loan with FB Lending. The new loan matures on June 30, 2020, according to SEC filings.

The $10 million purchase of Elevation Burger was made with $50,000 in cash, warrants to buy 46,875 shares of FAT stock at $8 a share, and a seller’s note with a principal amount of $7.5 million at 6 percent per year and maturing in July 2026. The Biglari funds lent an additional $3.5 million to FAT in connection with the acquisition

FAT Brands filed on June 3 a preferred stock and warrants offering seeking to raise $30 million. "I think that will be interesting to bring to the

market," Wiederhorn said, following Securities & Exchange Commission approval. Net proceeds will go to pay existing debt, and for general working capital and future acquisitions.

FAT Brands went public in October 2017, issuing 2 million shares of common stock at $12 per share. It bought Yalla Mediterranean in August 2018 and with Elevation Burgers now owns seven restaurant brands, including Fatburger, Buffalo’s Café, Buffalo’s Express, Hurricane Grill & Wings and Ponderosa and Bonanza Steakhouses that have approximately 335 locations open and 200 under development in 32 countries.

FAT Brands reported $18.36 million in revenue for 2018, up from $2.17 million in 2017. Its net loss was $1.79 million in 2018, up from $613,000 the year before. Cash balance was $653,000 at the end of 2018, up from $32,000 the prior year.

Clean Juice Founders Add Freecoat to Holdings

Beth Ewen reports mergers and acquisitions news in the franchise space in the monthly Dealmakers e-newsletter. Sign up at Franchisetimes.com/e-newsletter.

  • Crunch Fitness, New York, has new ownership after management partnered with TPG Growth to acquire it from Angelo, Gordon & Co. The transaction includes Crunch’s global franchising business as well as all Crunch locations, including its company-owned Signature facilities. TPG Growth is the middle market and growth equity platform of alternative asset firm TPG, which owns Life Time, based in Chanhassen, Minnesota. In 2009, Jim Crowley, Crunch CEO, and Mark Mastrov acquired Crunch with the private equity arm of Angelo, Gordon. Crunch owns, operates and franchises more than 300 fitness centers in the United States, Australia, Canada and Spain.
  • Leeds West Groups entered the Texas market by buying eight Big O Tires locations jointly with the Monteverde Group. Since joining the Big O Tires organization in 2004, Monteverde Group now has 24 locations and will manage all day-to-day operations of the newly acquired stores. Leeds West Group is an equity partner that acquires, owns and manages national automotive repair franchise brands.
  • Hooters of America has new ownership, with Nord Bay Capital and its adviser TriArtisan Capital Advisors buying the restaurant brand from H.I.G. Capital, Chanticleer Holdings and other investors. As part of the transaction, the selling entities will each retain a stake in the company. Hooters of America is the franchisor and operator of more than 430 Hooters restaurants in 38 states and 27 countries. Piper Jaffray Cos. served as financial adviser to the company.
  • CDM Fitness Holdings, the largest Planet Fitness franchisee in Massachusetts, attracted an investment from Spanos Barber Jesse & Co., a private equity firm that partners with founder and family-owned businesses. SBJ invested in partnership with CDM’s co-founders, CEO Brian Kablik, COO Bill Whelan and CMO Jonathan Epstein, as well as its CFO Eric Peabody, all of whom will remain in their present leadership roles. The McLean Group served as the exclusive adviser to CDM.
  • United PF Partners, the largest Planet Fitness franchisee, acquired 26 Planet Fitness locations and certain development rights in the Arkansas, Tennessee, Missouri, Mississippi and Illinois markets from PF Arkansas. This acquisition increases United PF’s operating club count to 152 across 14 states, spanning the West, Southwest, Midwest, South and Mid-Atlantic regions. United PF was formed by JLM Financial Partners and Eagle Merchant Partners in 2016 with the merger of several Planet Fitness franchisees. Jefferies and Fifth Third Bank jointly led the financing for the purchase.
  • Regis Corp., which franchises and owns and operates hair salons, sold 96 of its California-based Supercuts salons to Moxie Management Group, a portfolio company of a Spanos Barber Jesse & Co.-managed fund. Hugh Sawyer, president and CEO of Regis, said the sale is part of a "multi-year strategic transformation at Regis, and an important element of that transformation is accelerating the growth of our asset-light franchise portfolio where it supports shareholder value."
  • The Dobson family, owners of the Whataburger quick-service chain since the first restaurant opened in 1950, sold a majority stake to BDT Capital Partners, a merchant bank with a client list of family-run businesses. The sale of a controlling interest will provide Whataburger with the financing and know-how to accelerate the brand’s expansion, the burger chain said in a website posting.
  • Private equity firm Morgan Stanley Capital Partners acquired Impact Fitness, formerly a Bain Capital portfolio company and a 29-club Planet Fitness franchisee headquartered in Brighton, Michigan. Debevoise & Plimpton law firm advised Morgan Stanley.
  • California-based Certified Tire & Service Centers closed its sale to Monro Inc., announced investment banker Matrix Capital Markets Group. The purchase includes Certified Tire’s 40 retail stores and one distribution center. Certified Tire, founded by Jeff Darrow in 1997, is an independent auto service chain on the West Coast. Headquartered in Rochester, New York, Monro is a chain of more than 1,200 company-owned stores and 98 franchised locations. Monro went public in 1991 and trades on the Nasdaq under the symbol MNRO.
  • Que Taco Enterprises and D&M Holdings sold 11 Taco Bell restaurants in Colorado to existing multi-unit franchisee Rob Alvarado of Alvarado Concepts. Unbridled Capital provided sell-side advisory in the deal.
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