Tag Archives: BurgerFi



We call it a sign of the times and another signal of the enormous bubble in the capital markets. The last amount quoted relative to the amount raised this year for Special Purpose Acquisition Corporations (“SPAC”s) was a cool $20 billion, and a lot more is to come. In the restaurant industry, in particular, a SPAC organized by Sandy Beall (founder of Ruby Tuesday’s), including a group of well qualified restaurant industry executives, has announced an intention to raise $200M.

Investors have therefore provided $20B and counting to “sponsors” in the form of “blank checks” to go out and find a currently unknown worthwhile investment. This is a function of investors “reaching for return” in a zero interest rate environment. TINA (There Is No Alternative) is another acronym for this rationale.

  • 2014: $1.8bn across 12 SPAC IPOs
  • 2015: $3.9bn across 20 SPAC IPOs
  • 2016: $3.5bn across 13 SPAC IPOs
  • 2017: $10.1bn across 34 SPAC IPOs
  • 2018: $10.7bn across 46 SPAC IPOs
  • 2019: $13.6bn across 59 SPAC IPOs
  • 2020: $20 Billion and counting


Here’s the problem:

Almost every private company that chooses to go public by way of a SPAC will either be a highly speculative longshot, an aspiring Nikola (NKLA) or Draft Kings (DKNG), SPACs that are currently fueling the speculative fires, or a Company with a checkered history that is unable to survive the more rigorous due diligence by a high quality underwriting firm and the SEC. You will hear stock market pundits extolling the virtue of SPACs, that the process is quicker with less SEC and underwriter scrutiny. The other justification is that retail investor are provided a great “opportunity” to participate in early stage situations. Count on the fact that every comment you hear is made by somebody who is benefiting from the process such as a SPAC sponsor or an underwriter.  The more predictable “opportunity” is for the sponsors to make a huge profit (even if the Company that is acquired struggles). This is because the “sponsors” buy a large amount of shares for virtually nothing, before the public is offered their “opportunity”. The underwriters raising the capital usually receive options as well, and of course receive a hefty sales commission, both of which dilutes the public shareholders. Why would a prosperous, well managed company, with a predictable growth outlook, put up with this substantial dilution? The answer is : they wouldn’t, so companies that are acquired by SPACs are either (1) very speculative (2) troubled to a material degree or (3)the SPAC sponsors are paying an exorbitant price and the sellers can tolerate the dilution. It is worth noting that today’s SPACs usually allow the public investors to redeem their shares before a deal is completed, retaining the warrants attached to the original units, so the public has an out but is not really equipped to fully evaluate the situation. If the “music is playing” in terms of the general stock market and existing SPACs and the deal seems “interesting”, the public will most often play along.

When stock market pundits tell you “there is no bubble”, refer to the chart above, showing that “blank checks” are being written for over $20 billion in 2020, up from $1.8B in 2014.


We wrote about BurgerFi back on July 22nd, and that “first look” is provided here:


Six month financials for BurgerFi have been released, through June 30th, and nothing material has changed in the outlook as presented a few months ago. Stores are opening approximately on schedule, and the outlook for 2021 in terms of openings is about the same. The Company continues to emphasize their deal with ghost operator, Reef Kitchens, the US AirForce and other non-traditional partners but no financial parameters are attached to these discussions. The Company continues to project $4.3M of Adjusted EBITDA in 2020, up from $3.3M in 2019, and a sharp increase in 2021 to $10.5M. We consider that any uptick in 2020 (a “lost year”) is admirable. For what it’s worth, however, we doubt that this uptick will materialize because the six months ending June 30, 2020 showed Burger Fi (pre-merged) with about $1.5M of Adjusted EBITDA. The Consolidated OPES showed about a $1.0M loss of EBITDA, which would be difficult to “adjust” to much of a profit. It probably doesn’t matter, however, because investors will likely focus on the likelihood of the projected $10.5M of Adjusted EBITDA in 2021.

We can’t help but observe that management at BurgerFi must admittedly be beefed up (no pun intended). The Board of Directors is oriented towards  real estate, important to be sure, but not sufficient to plan and oversee restaurant current operations and long term strategy.

Our focus below, for the purpose of the discussion of SPACs in general, and OPES in particular, is the equity dilution of public shareholders.


We use BurgerFi as an example of the substantial dilution to which public shareholders of SPACs are most often subjected.

The public originally bought 10.4M shares, as part of $10.4M units (a share of common stock and a warrant) for $104M (less underwriting fees), and there were additional shares sold to institutions, also at $10. With no redemptions, and no warrant exercise the public would own 43.5% (excluding sponsor, initial stockholders, officers and directors) of the total outstanding.   Shares issued to sponsors, etc. were 2.875M (for $25,000), substantial dilution of the public’s 10.4M shares.

It gets worse in this case, however. By August 21, 2020, a great number of shares were redeemed, so the total shares outstanding were reduced to 7.9M shares (4.5M in public hands). In fact, the 6 month report, as of 6/30/20, shows $48.4M left in the OPES trust account, down from $116M after the IPO and the private placements.  The 2.875M  shares sold to the insiders, for next to nothing, become more than twice the dilution relative to half the original public float,

It gets worse yet, because there is a further “earnout” for BurgerFi shareholders amounting to a total of 9.4M shares. This takes place over the next two to three years, if and when the stock trades (for twenty days) over prices ranging from $19 to $25 per share. While it can be argued that everybody will be happy if that happens, this enormous potential dilution of the public’s interest obviously affects the upside reward from that point. It could also happen that the stock trades up for the necessary 20 trading days, then retreats, but the extra shares are issued for good. The dilution is, of course, forever.


The sponsors win, as long as any deal gets done, because their 2,875,000 shares are worth $10/share to start, if only they can liquidate them at some reasonable level.

BurgerFi current shareholders win because they receive $30M in cash at closing, not too bad based on $3.3M of Adjusted EBITDA in 2019, a “lost 2020” and big projections in 2021. They also get $20M in shares, which hopefully can be monetized if the Company performs anywhere close to expectations. Their additional earnout of 9.4M shares  would obviously allow BurgerFi current shareholders to share substantially in the upside possibilities. They will have had an appealing “bite of the apple” up front, and whatever remains of their 5M shares up front plus the 9.4M further shares will still allow substantial ownership to share the upside.

The public has a tougher road to profits, based on rational projections of stock price versus fundamentals. The current starting valuation of $10-12 per share, based on 17M average shares outstanding shown in the 6/30/20 pro forma financials, less now after redemptions, values trailing Adjusted EBITDA of $3.3M very highly, even $10.5M  of projected Adjusted EBITDA in 2021 adequately. If the stock should happen to get into the high teens and twenties, 9.4M additional shares will be issued, an obviously large amount of potential dilution and overhang to the public float.


Relative to Opes (OPES)/Burger Fi, and SPACs in general: Caveat emptor.

Roger Lipton



OPES ACQUISITION CORP, a “blank check” company, also called a “SPAC”, or Special Purpose Acquisition Company, raised $115M on 3/13/2018, and embarked on a search to find an attractive acquisition candidate.


This has become a commonplace approach in the current environment when so many investors are searching for return in a zero interest rate environment. Skeptics might suggest that this process is capable of producing massive “misallocation of capital” but that’s another subject for another day.

investors in these underwritings have the opportunity to vote on the proposed transaction, and can redeem their shares prior to the closing if they so choose. The warrants that are typically attached to the underwritten “units”, are retained by the investors even after redemption of the shares, as a sweetener for their trouble. There have been a number of highly publicized successful transactions whereby early stage companies developing Space Vehicles, Electric Cars, purchase of sports teams and other typically glamorous opportunities have created multi-billion dollar enterprise values. $12B has been raised so far in ’20 in this manner and hedge fund manager, Bill Ackman, is just now raising $4B. Our suggestion is that, in general, most companies that have come public in this manner are either very speculative or have some sort of a checkered history. An established, unblemished and well managed company can go directly to Goldman, Sachs or some other reputable underwriter, and become publicly held with less dilution of their pre-public equity.


There have been two recent attempts by well known restaurant chains to go public in this manner. Chucky Cheese (CEC Entertainment) tried to come public again about two years ago in this manner, but the transaction aborted (market conditions, you know?) before completion. TGI Friday’s tried to do the same earlier this year but the coronavirus pandemic interfered just days before the shareholder vote and the transaction was cancelled. We provided writeups on both of these situations (see the “Search” function on our Home Page) and were prepared to provide ongoing coverage, which proved unnecessary in both cases.


BurgerFi operates and franchises “better burger” fast casual restaurants. The “chef crafted” and “diverse menu with premium all-natural ingredients, combined with a next-gen sustainable restaurant design, appeals to consumers of all ages”.

Formal proxy material, which will include audited financial results, has not yet been filed. The following information has been excerpted from the Company website Investor Presentation. The Company has not yet responded to our request for an interview, and we will update and expand upon the following information when the proxy filing and/or interview take place.

Founded in 2011, BurgerFi opened the system’s 50th location in 2014, the 100th unit by 2017 and will have a total of 130 (105 franchised and 25 company operated) by the end of 2020. 54 (30C and 24F) locations are scheduled to open in 2021, according to the “internal Company forecast” and “executed franchise agreements and forecasts”.

The systemwide AUV (“12 mo. Average sales”) was $1.41M. Systemwide sales in 2019 was $146M. The average size of a location is not provided but the average Gross Buildout Cost is $650-750k. The Sales/Investment (excluding lease obligations) ratio is therefore about 2.0x. The average check per person (burger, fries, 16 oz.drink) is $13.01 and the average transaction is $18.40. The Prime Costs are 55.25%, leaving a Prime Margin of 44.75%. The average same store sales (over three years) has been 2.43%. Both lunch and dinner are important dayparts, at 45% and 54%, respectively. Burgers and More Sandwiches represent 58% of sales, Fries and Onion Rings 19%, Other Food 11%, Non-Alcoholic Beverages 9%, Alcoholic 3%. Store level EBITDA is not provided, nor is corporate G&A, pretax or aftertax profit.

Stores are established in both traditional and non-traditional locations. Highlighted are agreements with Aramark, who opened their first successful unit at Temple University in 2017, and HMS Host, who opened a $3M location at the Ft. Lauderdale airport in 2017. Aramark has plans for locations at University of South Florida, Philadelphia Fashion Center, Pioneer Place in Portland, OR, and Entertainment Center in Charlottesville, VA. Timing has not been provided. Information has not been provided yet as to HMS Host expansion plans, or how many existing locations are in airports, universities or other non-traditional locations that may be currently compromised due to the coronavirus. Agreements are also in place with non-traditional partners, Delaware North, SSP America and the US Air Force Services Activity (USAF). USAF has plans, in 2020-2021, to open six locations.

Another important non-traditional relationship has been established, with REEF Kitchens, an operator of “ghost kitchens”, backed by SoftBank and valued at over $1B. REEF has a “distributed real estate network of more than 5,000 locations…..across 50 cities, as the largest operator of logistic hubs and neighborhood kitchens in the US.” BurgerFi launched its first kitchen with REEF on June 15th in Miami, and is planning 25 such kitchens by 12/31/21. The BurgerFi/REEF effort sounds important and we await more information in this regard.

There is heavy geographical concentration in the southeastern US, with 50 locations now located in Florida. Florida will continue to be the focus for Company operated stores, and new franchised locations are spread more widely in the southeast. Furthest away are Air Force Base locations in Omaha, NE, Anchorage, AK, and Aurora, CO. More exact location numbers will no doubt be provided in the proxy material.


The current CEO, and largest shareholder, of OPES Acquisition Corp. is Miami based, Ophir Sternberg, with a heavy investment banking/real estate background. Other current directors have impressive financial credentials but no obvious restaurant experience. This will no doubt change once the contemplated transaction is completed. BurgerFi was founded by John Rosatti, but he is apparently no longer involved in operations. The Company is presently run by President, Charlie Guzzetta, who has worked his way up through the corporate ranks over the last seven years, and was named, several years ago, by Nation’s Restaurant News, as one of the restaurant industry’s most influential executives. At the same time, there is a current search for an experienced CEO, which is understandable, considering the very rapid expansion plan and long runway for growth.


While no actual financial results have been yet provided, from 2019 through estimated 2020 and 2021, the following summaries have been provided.

System revenues will have gone from $145.8M in ’19 to $112.5M in ’20 and $161.0M in ’21.

System stores will have gone from 113 in 2019 to 130 in 2020 to 189 in 2021.

Net Company Revenues will have gone from $31.9M in ’19 to $30.9M in ’20 to $59.3M in ’21.

Adjusted EBITDA will have gone from $3.3M in ’19 to $4.3M in ’20 to $10.5M in’21.

The current BurgerFi shareholders will receive $30M in cash and 6.6M shares, which will represent 38% of the 17.6M shares outstanding after the transaction. Assuming that OPES (renamed BurgerFi, BFI) sells at $10.60 per share, the Implied Equity Value would be $186M, including about $45M in cash raised from the IPO and a private placement, and the Implied Enterprise Value would be $143M.

Setting aside additional contingent shares to be issued when BFI price hits $19, $22, and $25, the Enterprise Value is 2.4x Estimated 2021 Corporate Revenues and 13.6x Estimated 2021 EBITDA.


We expect to know a lot more before this transaction, expected to be completed in October, takes place. The positive aspects include strong geographical concentration (easier to manage during rapid expansion), an established franchise system including important non-traditional partners, the new REEF ghost kitchen approach, and unit level economics that include well controlled prime costs at about 55% of sales.

At the same time, actual financials are not yet available and investors will no doubt want to fill in the blanks regarding BurgerFi’s history, unit level economics, strategic positioning and expansion plans. This is especially so in the middle of a pandemic which makes 2020 basically a ‘throw away” year. It has to be considered a “reach” to project $10.5M of Adjusted EBITDA in 2021, almost a triple of the average EBITDA in ’19 and ’20. Justifying 13.6x that  number may be difficult, considering the G&A burden to support very rapid expansion, especially for Company operated locations.

We will provide more information to our readers after formal proxy material is filed.

Roger Lipton