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We have written recently about Special Purpose Acquisition Companys (SPACs) in general, and the potential purchase of BurgerFi by Opes Acquisition Corp. (OPES). When we first commented about SPACs a short four months ago, the running total of these blank check companies to have gone public in 2020 was a token $20 billion. Weeks later it was $60B and now it is pushing $100 BILLION. You can call this a sign of the times. Investors are providing $100B to what we used to call a blind pool. This is another symptom of TINA (there is no alternative) as investors reach for a return, no matter how little they know about what they are investing in.

Relative to OPES and BurgerFi: The sponsors of OPES raised over $100M in March of 2018, almost three years ago. After a number of extensions, they announced in May 2020 that they were targeting BurgerFi, a currently 116 unit system of mostly (over 100) franchised fast casual burger restaurants based in Florida. Readers can review our past discussions (see SEARCH on our Home Page) but suffice to say that this chain that has been modestly profitable, which is acceptable for a private company in the early years of building a franchise system. The fact that their stores are heavily concentrated in Florida, which allows for operational efficiency, and that the dozen company operated stores average AUV was $1.869M annually (vs. $1.345M for franchised locations) has allowed for this profitability. On the SPAC structural side, it is very important to know that, as we discussed previously, over half of the $116M that was in trust as of 12/31/19 had been redeemed in the course of this year’s first quarter that featured the Covid-19 pandemic. We suspect that larger situations were originally targeted but after more than half the original bankroll was redeemed in early 2020, OPES sponsors decided that BurgerFi was their best opportunity.

One of the stated attractions of using SPACs to go public is that the time frame is shorter than with a traditional IPO. We suggest that the SEC, while careful in reviewing accounting treatment, is not passing judgement on the long term investment appeal of the enterprise. The underwriter for the SPAC has knowledge of the sponsors, but the SPAC investors are not protected by the presumably more informed business judgement of a traditional IPO underwriter. We view our role here to do a bit of that.

On November 13th, the shareholders voted to extend the date (for the sixth time) of consummation from 11/15/20 to 1/31/21. Preliminary proxy material has been filed and, once cleared by the SEC, the shareholder meeting to approve the deal will be scheduled before 1/31/21.


We refer our readers to our previous articles on BurgerFi, which can be found with the SEARCH function on our Home Page.

First, our decades of experience working with a traditional IPO underwriter taught us that almost no deal would be brought with reported results that were last audited almost a year earlier. Such is the case with the BurgerFi. It’s possible that the final proxy filing will provide more recently audited results and commentary but that would be a little late for much scrutiny.

That said, according to the most recent proxy material:

Unit level economics for an operating BurgerFi  is of utmost importance. The 2200-2400 square foot unit costs about  $750k to build and equip (described earlier in the year as $650-750k). As shown in the table below, the AUV for company stores in 2019 was $1.869M, up a little from 2018, flat over five years. Presumably describing company units : “The typical per unit contribution at this sales level  is about $250,000 annually or about 13.9%.” Things get a little confusing, however,  because store level EBITDA at company stores in 2019 (from Exhibit F-4 of the proxy) would calculate to only 9.5% (26.5% CGS, 32.9% Labor, 22.1% Other Expenses, 9.0% Occupancy Related Expenses). However, Note 1 of the financials says that the BF Commissary, which commenced operations in 2019, produces and sells BurgerFi’s vegetable burgers to a distributer based on agreed-upon cost plus freight cost. For the year ended December 31, 2019, the Company recognized revenue of $709,876 from BF Commissary, presented as part of restaurant sales in the consolidated statements of income. If the cost of Commissary Sales is in the area of  $709k and that is deducted from the “Other Restaurant Expenses”, it would bring the apparent 9.5% store level EBITDA close  enough to management’s 13.9% suggestion, which suffices for the following analysis.  We should emphasize however that the 13.9% is against an AUV of $1.869M  which the franchisees will be hard pressed to match, considering that their average AUV was $1.345M in calendar 2019.

Table I


No standard percentage royalty is stated. Royalties earned are described as a “sales based royalty”, which we assume to be a sliding scale dependent on volume.  We can deduce the average royalty percentage, however, because we calculate that about 95 franchise stores were operating in 2019 on average, with an AUV of $1.345M, so franchise system sales were about $128M. The actual royalties earned, shown in Table II below, divided by franchise system sales, indicate a “Sales Based Royalty” of 5.4%, “Brand Development Fee” of 1.4%,  and “Vendor Rebates”  to the parent of .45%.

Franchise operated locations, assuming the 13.9% company operated EBITDA margin (at higher volumes), would therefore be reduced by about 7 points to 6.9%. That percentage of 2019 franchise AUV ($1.345M) is a cash return of $93k or 12.3% of the $750k buildout (excluding pre-opening expense). That is obviously not an especially attractive return, since it is before depreciation (a real cost over time, running about 2-3 points for the Company) and local G&A expenses (at least another 2-3 points).  That would practically eliminate the 6,9% of sales store level EBITDA for the franchisee.

We have provided, at the bottom of Table I above the high volume franchise locations that the proxy material featured. Experienced chain restaurant observers know, however, that some stores do better than others and it’s the averages that matter. Our conclusion from the above discussion is that the franchised locations to come must match or exceed the Company AUVs, or there will not be very many happy franchisees. A 6.9% Royalty  Adjusted EBITDA return,  even on the $1.859 company AUV is $128k, still a less than exciting 17% cash on cash return.


Opes and BurgerFi present some impressive projections for 2021 and beyond. As we described in our previous reports, at the beginning of 2020, $3.3M of Adjusted EBITDA in 2019 was estimated to grow to $4.3M in ’20 and $10.5M in’21. We accept the fact that 2020 is a lost year, for the restaurant industry as a whole. However, one should not be too impressed by the million dollar gain in Operating Income in 2019 vs.2018.  The largest part of this “Operating” gain (as shown in Table III above) was the fact that Brand Development Expenses for the year ended December 31, 2019 exceeded revenues received by $13,000, as compared to the year ended December 31, 2018 of $802,000. This represented a decrease (in expenses) of $789,000. This decrease is due to the Company spending much less on production and media advertising during the year ended December 31, 2019 versus the year ended December 31, 2018. (as described on Page 104 of recent proxy material).

While Operating Income was positive again in 2019, the increase (Adjusted with the above item) from 2018 comparison to calendar 2018 was $391k, not $1,180k.


Management has been beefed up, with the hiring of CEO, Julio Rasmirez, with a broad base of international franchisee prospects. His credentials include:

Sales have steadily improved from May through September. As the proxy described: “Beginning in May and through the end of June 2020, same store sales declines partially recovered to negative 20%. In the third quarter of 2020, same stores sales declines were in the negative single digits. We did not experience any supply chain difficulties as a result of COVID-19 during the first three quarters of 2020; however, there can be no assurances that we will not experience supply chain challenges in the future. We experienced negative cash flow during the months of April and May 2020 and have since turned cash positive in June through September.”

The table below shows how off-premise activity contributed to the improvement through the end of June.


It is natural that a company choosing to withstand the substantial dilution by way of a SPAC IPO process will have a little “hair” on it. As we have previously described, the promotional percentages to the upfront sponsors and underwriters can amount to as much as 30% of the target company’s pre-deal value. In addition to the points we have raised above, there are no doubt lots of additional questions that can be raised by a 150 page proxy document, especially when results since December, 2019 have not been audited. This last aspect may yet be satisfied by the final pre-deal proxy, but shareholders will have little or no time for study before voting.

Accounting issues and historical details aside, our primary concern is that the unit level economics, as documented from historical results, are not compelling. The post-merger valuation of $140M or so will be something like 14x EBITDA projections for 2021 that were made almost a year ago.  The franchise locations need AUVs and margins materially higher than has historically been the case. As we have pointed out in our previous articles, if the Company should happen to make their projections, a great deal more dilution kicks in with earnout shares, so the working multiple is well over 20x what we feel are questionable projections for 2021. Aside from the normal uncertainties relative to the timing and the success of new openings, we expect there to be a large number of unexpected legal and accounting expenses in the course of managing a new publicly held entity. This will be on top of the operational needs of a rapidly growing chain.

We therefore think it is only a remote possibility that 2021 will generate returns anywhere close to projections. We are sure the economic impact of the planned expansion with Reef Kitchens, as well as the franchise structure at military bases would have been described in  detail if there were any reasonable basis to do so. We also doubt that the international franchising community will be clamoring anytime soon for BurgerFi franchised territory, no matter how well connected the new CEO.

We wonder: should this deal get done? Will this deal get done? We think Warren Buffet’s famous advice, “You don’t have to swing at every pitch” applies.

Roger Lipton