Restaurant Finance Monitor
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Danny Meyer and Co. raised $250M yesterday. Now the hunt begins to find a high quality company that can be bought without overpaying by too much. The time allowed to complete the transaction is twenty four months, though that could be extended by way of a shareholder vote.

Something like $100 billion has been raised by way of SPACs (Special Purpose Acquisition Companies) in the last twelve months, which can be leveraged four or five times. If half of that is still in the hunt, that would mean that $250 Billion is looking for a home. Foreshadowing our conclusion:  it will be hard to find a bargain.


Each Unit of USHG AcquisitIon Corp. (HUGS/U), sold to the public at $10.00, consists of a share of Class A common stock plus one third of a five year warrant to purchase a share of class A common at $11.50. The $11.50/sh warrants are exercisable on the later of 30 days after the business combination or 12 months from the IPO. The Sponsor of HUGS  is an affiliate of Union Square Hospitality Group, LLC, (USHG, the same letters, different order).

We need not detail the credentials of Chairman of the Board, Danny Meyer, literally a legend within the hospitality industry.

In addition to Randy Garutti, well known to investors as CEO of Shake Shack, Directors probably less well known to restaurant industry investors, are: CEO, Adam Sokoloff; CFO, Tiffany Daniele; J. Kristofer Galashan;  Lisa Tatum; Mark Leavitt; Walter Robb; Heidi Messer; and Robert Steele.

Daniele, Galashan, Tatum, Leavitt and Robb have long been affiliated with USHG. Sokoloff and Steel are highly qualified in terms of their background within investment banking and private equity circles. Messer has been a prominent, successful  entrepreneur and investor in the digital economy since the commercialization of the internet.

There is also an Advisory Council, consisting of Clarence Otis, Jr., Avisheh Avini, Patti Simpson, Kelly MacPherson, Richard Coraine, Darryl “Chip” Wade, Jonathan Sokoloff and Peter Mavrovitis, all of whom are affiliated with USHG.

Meyer has clearly done his best to include many of his key associates  from Union Square Hospitality Group, no doubt in his desire  to bring his associates along for  “the ride”.

The stated acquisition strategy, in the same mold as USHG and publicly held Shake Shack,  is “to identify and acquire a company with a people-first culture”. HUGS is not, however, limiting their search to the restaurant industry.


There were 6,934,500 Class B shares outstanding before the offering ,bought by the Sponsor for $24,120 (That’s twenty four thousand, one hundred twenty dollars.).  The Sponsor contributed 115,0000 shares  to Share Our Strength, a nonprofit working to end childhood hunger. Following the planned Business Combination, an additional  253,000 shares of class B common may be issued to advisors, presumably largely from the group mentioned above. The Founders’ B shares will elect Board members prior to the Business Combination, then be converted to A shares.

The Sponsor agreed to lend up to $300,000 to HUGS, to cover organizational expenses, to be repaid from the proceeds of the offering. The sponsor has agreed to purchase 1,333,333 warrants similar to those publicly held, for $2M, or $1.50/wt.

The Founder’s shares can be sold at the earliest of (A) one year after the Business Combination and (B) subsequent to the business combination, if the closing price of the public shares is at or above $12.00/sh for 20 trading days commencing 150 days after the business combination.


The Sponsor is risking about $24,000 to buy the Founder’s shares, plus loaning $300,000 for organizational expenses if the SPAC doesn’t become publicly held. Worst case, the Sponsor loses $324,000. When the deal comes public, another $2M is spent to purchase $1.33M warrants, so the Founder is then out of pocket by $2,024,000.

The public shareholders of HUGS have the right to redeem, for approximately $10/share,  prior to the Business Combination if they disapprove of the outlook from that point forward. This is typical of SPAC offerings and a major source of comfort to the SPAC buyers, along with the warrants (costing nothing) they can keep if they  bought the Units at the IPO. If time runs out to find  a Business Combination or if the majority of all the shares (37.5% of those publicly held) disapprove of the deal, the SPAC would be liquidated and the full $2,024,000 provided by the Sponsor would be lost.

The Founder’s shares, not liquid for a while, at the $10/share offering price of the unit before the public has won or lost anything,  are worth $69 million, almost 35 times the total invested.

However, it may not be easy to sell a lot of shares very soon.  There are lots of reasons that HUGS might not do so well for a couple of years after the Business Combination.  The Sponsor can sleep pretty well, though, because there is a big cushion. It only requires about  $0.30/share for the Founders to get back their $2.024M. On the upside, if the HUGS common should trade north of $12, to perhaps $15/sh., six months after the Business Combination, for whatever combination of reasons (strong market, exciting story, etc.etc.) the value of the liquid shares at that point, would be worth over $100M.

So….if management has any reasonable success, the return to the sponsors would be very large. If the stock only trades at $5 (so the IPO purchasers have lost half their investment) the Sponsors own over $30M worth of stock, fifteen times their money. At $15/share, the public makes a 50% return (plus the value of their warrants) and the Sponsor makes over  fifty times its investment..

And that’s why smart  entrepreneurs who can find an underwriter, are sponsoring SPACs. That’s also why there is going to be very active M&A activity, a great deal of it at inflated prices.


HUGS is going to find a very attractive opportunity, an open ended growth situation,  including a great “culture”. HUGS’ management will follow Warren Buffet’s approach in terms of paying a full price for a high quality property.  Meyer and Co. will have  outbid other purchasers in this overfunded environment, but the investment community will give HUGS’ management every benefit of the doubt. Investors will have a reasonable  chance to make an acceptable return over the long term and the Sponsor will make a fortune.

Roger Lipton