Twin Peaks, FAT Brands’ largest contributor to corporate EBITDA, with a current estimated EBITDA run rate in the mid to upper $30M range, is a chain of 100 (currently about 70% franchised) “sports bar” lodges. As the Company has previously described, the unit level economics are compelling, with systemwide AUV’s north of $5.5M, “with some of our highest volume locations in Florida generating AUVs between $9M and $12M each.” We estimate that these 6-8000 square foot locations are generating a cash on cash return among the best in the restaurant industry, predictably generating a pipeline of an additional 109 locations to be built over the next several years. The chain has grown almost 40% in units since its acquisition by FAT, less than two years ago in late ’21.
The indication by FAT Brands’ management is that they would file for an IPO in early ’24, at which point the EBITDA run rate could be north of $40M, heading to $50M by the end of ’24. Comparing what we know about the unit level economics at Twin Peaks, the demonstrated credentials of their operating management, the franchise model which allows for substantial earnings leverage as the system grows, it appears to us that an Enterprise Value of a billion or more could be justified. The valuation is naturally dependent upon the state of the general market and valuations of peer franchising restaurant companies. Our model just below, built from publicly disclosed information, provides our attempt at a “realistic” estimate of Twin Peaks’ growth over the next few years.
WHAT WILL TWIN PEAKS BE “WORTH” WHEN OFFERED TO THE PUBLIC?
No two companies are the same, obviously, and current valuations within the restaurant industry, in terms of Enterprise Value versus trailing twelve month corporate EBITDA, range from multiples in the single digits for mature, slow growing chains with mediocre unit level economics to that of Wingstop (over 50x trailing EBITDA), Dutch Bros (in the mid 40s), Chipotle (about 35x), and Shake Shack (about 30x). Especially interesting right now is the pending IPO for CAVA Mezze Grill, with a contemplated valuation approximating $2 billion.
There are too many differences between CAVA and Twin Peaks to discuss here. Moreover, the biggest single difference, in terms of CAVA’s credibility in the marketplace, is that Ron Shaich, the long term “visionary” behind Panera, is Chairman of the Board and a major shareholder. Joe Hummel, long time President and driving force behind Twin Peaks is not nearly as well known, but his record speaks for itself, he is widely respected by those who know him, and (without “blowing smoke”) we can vouch for the fact that he “presents” just fine.
Management appearances aside, Twin Peaks’ unit level economics seem to be at least as good as those of CAVA, which has a 20.3% unit level EBITDA in calendar ’22 (with a big jump to 25.4% in Q1’23) and a year two targeted cash on cash return of 35%. Both companies are growing units at 15-20% rate, but Twin Peaks has an advantage in terms of the EPS leverage and potentially faster growth contributed from its successful “asset light” franchising effort. Moreover, CAVA, as promising and well positioned and managed as it is, in only the most recent quarter, Q1’23, did the corporate Adjusted EBITDA “pop”, to $16.7M vs ($1.6M), annualized to a $68M Adjusted EBITDA “run rate” that the marketplace seems prepared to pay 29x for. Adjusted Corp EBITDA in calendar ’23 was $12.6M vs $14.6M in ’22.
We need not dwell on CAVA/Twin Peaks comparisons, except to suggest that the fundamentals at Twin Peaks are as good or better than most.
CONCLUSION
We believe that Twin Peaks, as a company, has a realistic likelihood of being worth $1B, and more, at some point within the next several years. If they produce the results as outlined above, it then becomes a question of timing and perception. Only time will tell.
Roger Lipton