FAST Acquisition Corp (FST), about to merge with Fertitta Entertainment, Inc (FEI). filed preliminary proxy material yesterday. Our previous articles describing this relatively large transaction within the hospitality business can be accessed by way of the SEARCH function on our Home Page.


The size, alone, of this transaction provides an unusually attractive situation. Starting with the “acquisition target”, the roughly 20% dilution of the target’s equity, normally going to underwriters and sponsors of any SPAC, will be more like only 2% in this case. This is because a $6-7B Enterprise Value, once the deal is consummated, dwarfs the $250M originally raised. The very large amount of equity to be issued to the target and the private equity (PIPE) participants, taking place close to the price that the public has paid, dilutes the “promotional” shares very materially. This results (by our reckoning) in a much “fairer” result for all and the public “stakeholders” have a better opportunity for profit. In essence, the fundamentals of the situation don’t have to overcome the normal magnitude of dilution from sponsors and underwriters. Down the road, of course, after the deal is consummated late in ’21 or early ’22, the fundamentals will determine the outcome for all.


Recall, that in our article: “The Room Where it Happened”, we described how Tilman Fertitta sweetened the deal from the original terms, no doubt to encourage approval by institutional investors. In early August Tilman had indicated that the enlarged Company was generating about $270-275M of pro forma EBITDA in Q2’21, annualizing at about $800M as of mid’21, and this was a lot better tan the $648M of Adjusted EBITDA that had earlier been forecast for calendar ’22. We quoted sources who speculated back in January that Fertitta’s hospitality empire was generating a trailing twelve month EBITDA of about $400M, so that had obviously improved by July to suggest $800M annualized, seriously aided by the newly included restaurants.

We will review the several hundred pages (as you can imagine) in the preliminary Proxy when we can, but for the moment:

Adjusted EBITDA of Fertitta Entertainment, Inc.(FEI) in calendar ’19 was $513M, so that’s the base to build upon.

In the first quarter of ’21 vs. ’19, sales were down 23.3% to $634M from $827M. However, operating margins improved materially and Adjusted EBITDA was up 5% to $147M.

In the first half of ’21 vs. ‘20, Revenues were up 49.1% TO $1.63B. Operating Income in ’21 was $340M vs a loss of $111M in ’20. Adding back $99M of D&A, and subtracting $22M of Asset Sale Gain, provides about $417M of EBITDA in the first half. Our attempt to extrapolate Q1 and H1 ’21 numbers to a ballpark current sales trend goes like this:  Revenues of FEI for all of calendar 2019 were $3.48B, so the first half of ’21 ($1.63B, annualizing at $3.26B without a seasonal adjustment) is only 6.4% lower than full year of ’19, and the first quarter of ’19 vs. all of ‘19 shows very little seasonality, in any event. We therefore suspect, without knowledge of comps since March, that comps (while possibly volatile) have improved on balance from the negative 23.3% in Q1’21 vs. ’19.

However: The Company is once again guiding to $648M of Adjusted EBITDA in 2022, which assumes a 13% decline in same store sales in ’22 vs. ’19 and 390 bp of margin improvement. This number excludes the contribution from new restaurants expected to open in ’22. On the positive side, the Enterprise Value, at $6.0B, has become about 9.25x the $648M of ’22 EBITDA, helped by the $750M value of the 46% of DraftKings stock to be exchanged for FEI’s ownership of GNOG.


The FST/FEI combination is clearly expecting major margin improvement in ’22, already happening in ’21. The question is: SALES? Either (1) management of the combined Company is reflecting their concern about renewed weakness in the hospitality business, because Fertitta has publicly stated (on TV at least) that business has recently been strong or (2) management is choosing to take an ultra-conservative stance. After all, with the deal  already sweetened with additional restaurants from Fertitta, and the balance sheet to be improved by the receipt of DraftKings stock (in payment for FEI’s GNOG), the Enterprise Value as a multiple of next twelve month’s Adjusted EBITDA will be enticing enough. Whichever way the general economy goes,  relative to other publicly held hospitality companies, FEI has more than likely underpromised and could well overdeliver. (UPOD).

We will report further on this dynamic situation over time.

Roger Lipton




There has been a flurry of M&A activity: Panera selling Au Bon Pain; FAT Brands buying GFG Group with five brands; Famous Dave’s buying Village Inn and Baker’s Square; Lee’s Famous Recipe sold again; A Jack in the Box franchisee buying Taco Cabana; J. Alexander’s going private; the $500M IPO of Krispy Kreme and Fertitta’s multi-billion dollar SPAC transaction. The reasons include: (1) Very low Interest rates (2) P/E firms and SPACs are flush with cash and the restaurant space is always seductive. (3) The industry is recovering almost daily, so buyers sense opportunity, especially since off-premise sales provide new growth possibilities. (4) Post-pandemic it is natural for some single brand owners to have “had enough” and multi-branded operators have had ample time to decide which portions of the tree are worth pruning. With future operating margins still uncertain, there is therefore an ongoing pool of willing sellers. (5) Public valuations have recovered, providing a reference point for private valuations, all of which can be tolerated with the still low interest rates (6) The talk, by the Biden administration, of much higher capital gains taxes provides strong current motivation. Our conclusion: virtually all of the above ingredients will remain for the foreseeable future. Additionally, campaign season for the mid-term national election is already upon us. The Treasury and the Federal Reserve, openly working in tandem (violating the supposed independence of the Fed), will therefore keep interest rates low and money available. If you are a potential seller, get your power point presentation ready and, as Bernard Baruch advised, leave a little on the table for the next guy.  If you are a buyer, be careful out there. It’s not as easy as it sometimes looks, and leverage works both ways.

IN “THE ROOM WHERE IT HAPPENED” – WHY DID TILMAN FERTITTA SWEETEN THE DEAL? Outside the room, it is likely relevant that a great deal of the bloom has come off the SPAC rose. Only one of the six restaurant related SPACs has been trading above the $10 issue price and that has been Fast Acquisition Corp. (FST), which has been finalizing the proxy material relative to the pending acquisition of Tilman Fertitta’s multi-billion dollar hospitality empire (72% restaurants and hotels, 28% gaming).

Recall that shareholders in a SPAC have the right to redeem their shares at approximately the $10 issue price if they don’t approve of the suggested business combination. FST has been trading at about $12/share, normally a safe premium going into the vote. However, the possibility of deal rejection may well have been of concern to both Fertitta and the FST sponsors (Doug Jacob and Sandy Beall, most prominently), especially with the SPAC index trading down about 25% from its high earlier this year.

With even modest uncertainty Fertitta decided to sweeten and insure the deal by adding 42 additional properties, including Vic and Anthony’s,The Pleasure Pier on Galveston Island, the Mastro’s steakhouse chain and his 50% of Catch Hospitality Group. Collectively these properties generate EBITDA somewhere north of $100M, depending whether we talk pre-pandemic, the current recovery phase, or post-pandemic 2022. As a result, Fertitta will end up with 72% of the post-merger FST, up from 59% previously.

The resulting EBITDA is a bit of a moving target. In early January, 2021 his empire was strung out with over $4B in debt and apparently around $400M of pandemic depressed trailing EBIDA. Three months into 2021, there had been an already material recovery, so the original FST/Fertitta merged guidance was $648M of EBITDA in 2022. Now, 3 months later and including the additional properties, Fertitta has indicated that the prospectively enlarged company is currently (Q2’21) generating pro forma EBITDA at $270-275M for the quarter, or $800M annualized. The post-transaction Enterprise Value is estimated to be $8.6B or about 11x the current EBITDA ran rate. The new Enterprise Value/EBITDA is not materially different from the original. Importantly, however, the debt is not being increased. The merged debt will have been reduced from $4.5B to “only” $3B, from the $200M IPO raise and privately raised equity (the PIPE) of $1.2B.In The Room Where It Happened: We suspect that the institutional shareholders of FST were not adequately comfortable with $3B of debt relative to the original $648M of projected ’22 EBITDA. This transaction, originally and as adjusted, is a great result for Fertitta, who only a year ago stooped to raise $250M at 15%. With the hospitality industry now improving daily, he could afford to sweeten the deal. Sounds a lot better, relative to $3B of debt, to be running at $800M today than guiding to $648M in ’22. Tilman Fertitta is a practical man. The last thing this serial acquirer needs is to be mortgaged to the hilt just as his empire becomes publicly held once again. No doubt he said to himself: “Let’s get this deal done and move forward. Who knows what tomorrow brings?” And that’s what we would have advised.

SANITY BEGINS ITS RETURN TO THE EQUITY MARKETPLACE: We wrote last month about the high contemplated IPO price for Krispy Kreme (DNUT). The deal was completed at $17/share, down from the original price range of $21 to $24 and the stock is currently trading around $18. Of the six restaurant related SPACs that are trading, only one is materially above the issue price and Tilman Fertitta sweetened the deal materially, as described above. Bitcoin, which we have also written extensively about, is down 50% from its high of just ninety days ago and 10,000 other cryptocurrencies are suffering to varying degrees. All good things come to an end.