FAT Brands (FAT) – ACCRETIVE “TACK ON” ACQUISITION COULD ENHANCE THE PLANNED IPO OF TWIN PEAKS – PROGRESS CONTINUES WITHIN EXISTING SEVENTEEN RESTAURANT BRANDS

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EITHTEENTH BRAND PURCHASED

FAT Brands announced last evening the acquisition of sixty one Smokey Bones Bar & Fire Grill locations, purchased from an affiliate of Sun Capital Partners, Inc. The purchase price of $30 million has been funded from FAT’s existing securitization facility. The announcement states that adjusted EBITDA is expected to be enhanced by approximately $10M, which implies a purchase price of only about three times EBITDA.

While the Smokey Bones locations were obviously not promising enough to remain within Sun Capital’s portfolio, and are projected to generate the relatively modest average of only $163k of corporate Adjusted EBITDA per store for FAT Brands, the purchase price of about $500,000 per property is relatively low for stores that are likely around 7-8000 square feet. Moreover, FAT Brands is in the unique position of owning a promising brand, namely Twin Peaks, that could likely generate closer to a million dollars of EBITDA per location, generating a handsome return on investment on conversion costs that would be a lot less than building from scratch. With currently around 100 Twin Peaks locations systemwide (growing at 15-20% annually) even 10-20 conversion opportunities within the Smokey Bones portfolio would be a material addition to the Twin Peaks development program.  The best of the non-conversion sites could be managed as an eighteenth brand and others could likely be monetized for an average of at least $500k/site. Overall, this transaction demonstrates that FAT Brands, in spite of its existing obviously high leverage, maintains adequate financial flexibility to put in place another transaction with an attractive reward/risk profile.

STEADY PROGRESS WITHIN THE PORTFOLIO

Since the second quarter earnings report in early August, a number of productive operating developments have been announced.

On August 7th: A new development deal to bring 20 Johnny Rockets locations to Texas in the next 10 years, with the first unit to open In 2024. The franchisee, Brame Holdings LLC, is also developing Fatburger and Buffalo Express, as well as Round Table Pizza, all part of an 80 store development deal in Texas.

On August 9th: A new development deal to open 10 Hot Dog on a Stick locations in Iraq. The franchisee, Global Vita USA LLC, is also developing Fatburger and Buffalo’s Express, as well as Great American Cookies and Marable Slab Creamery in Iraq.

On August 10th: Three new locations of Round Table Pizza have opened, bringing the California footprint of this 65 year old brand to 340 locations.

On August 29th: Great American Cookie returned to Orlando, with a franchisee converting another of the Nestle Toll House Café locations, the brand previously purchased by FAT Brands with this conversion intent. “The cookie chain has plans to continue its growth in Orlando with new locations set to open this year.”

On August 31st: FAT Brands announces the opening of a co-branded Great American Cookies and Mable Slab Creamery location in Happy Valley, Oregon, the first Pacific Northwest location for both brands.

On September 5th: Fazoli’s returned to Orlando, owned by franchisee, Keys Restaurants, Inc.

On September 20th: Fazoli’s opened Its second location in Little Rock, Arkansas, and Doug Bostick, President at Fazoli’s, added “Our second location in Little Rock is just the beginning…”.

Roger Lipton