Tag Archives: Fat Brands



Readers interested in FAT Brands should review our previous reports by using the SEARCH function on our Home Page.


FAT Brands (FAT) is moving quickly to become a leader in the multi-branded restaurant space.

While investors in both the common stock and the 8% Preferred have done admirably over the last eighteen months, analysts have to look below the surface to accurately view the risk vs. the reward. This is because the pace of acquisition and the accompanying balance sheet expansion, accomplished during a worldwide health crisis, has predictably distorted the most obvious reported results. The $494M of debt looks daunting relative to historical GAAP treatment, not so much relative to the $55-60M (and more over time) of potential annual EBITDA from the fourteen brands now in the portfolio. Comparable “Asset Light” and “Free Cash Flow” restaurant franchising companies are trading at Enterprise Values materially higher than is the case here. We conclude that, with the demonstrated indications of brand health and unit growth potential, there is reason to believe that the apparently aggressive management guidance, starting in Q4’21 to Q1’22, and using 2019 historical EBITDA as a base, will prove to be valid. Accordingly, we continue to feel that FAT stock price will appreciate from current levels as reported results more obviously reflect the fundamental progress that is being made.


The second quarter (Q2’21) was marked by announcement of a major acquisition (closed on 7/22) accompanied by balance sheet expansion at a reduced interest rate and ongoing liquidity to fund further deal activity. The acquisition of Global Franchise Group (GFG), with five brands (Round Table Pizza @ 40% of portfolio systemwide  sales), expanded the current multi-branded franchising portfolio (including Fatburger, Johnny Rockets, Hurricane Grill and Buffalo Cafe) from about 650 current locations to more than 2,000 worldwide. $442.5 million was raised in the process, the total number of brands was increased from nine to fourteen, and the post-Covid EBITDA guidance was increased from $15-20M to $55-60M. The balance sheet at 6/30 showed cash and restricted cash of $54M and total debt of $494M at a blended interest rate of 6.5%. Management reiterated on the Conference Call the intention to conclude another acquisition, as well as an interest rate reduction, in the near future, within six months in our estimation.


Qualitatively: diversifies FAT portfolio to include pizza, snacks and dessert, expands FAT’s purchase power with suppliers and distributors, provides a manufacturing facility that can serve franchise partners within 14 brands, allowed for shared administrative services, provides a large and diverse franchisee base, adds five established brands.

Quantitatively: 2019 systemwide sales were $1.36B vs. $710M for FAT previously, 2019 store count was 2,061 vs. 628, there were 766 franchise partners vs 303, there were 183 multi-unit operators vs. 74.


Costs and expenses decreased to $6.2 million in the second quarter of 2021 compared to $8.9 million in the second quarter of 2020. General and administrative expenses increased $1.4 million primarily due to increased professional fees and expansion of the management team.

On July 22, 2021, the Company completed the acquisition of Global Franchise Group (GFG) for $442.5 million, adding five brands to the portfolio – Round Table Pizza®, Great American Cookies®, Hot Dog on a Stick®, Marble Slab Creamery® and Pretzelmaker®. The transaction was funded with cash and stock, including $350 million in cash from newly issued notes and cash on hand, $67.5 million in Series B preferred stock and $25 million in common stock.

GLOBAL FRANCHISE GROUP OVERVIEW (from the investor presentation)

GFG is a global restaurant franchising company with a portfolio of one pizza and four quick service restaurant concepts and a manufacturing facility in Georgia. GFG’s portfolio has 1,433 restaurants (97.7% franchised, 86.7% in the US. Locations are in 12 countries and 45 states. Round Table Pizza accounts for 60% of systemwide sales. There are 463 franchisees, 109 of which are multi-unit. No franchisee accounts for over 4.5% of the portfolio. GFG owns a 37,400 sq. ft. production facility in Georgia that exclusively supports GFG franchisees. It is vertically integrated and manufactures 13M lbs of cookie batter and 3.5M lbs of dry pretzel mix each year , distributed to over 375 locations nationwide. GFG began e-commerce business in 2019, achieving Amazon’s Choice for “fresh baked cookies’ in December, 2020.


Management reiterated confidence in the stated goal of generating, in a post-Covid environment annual EBITDA of $55-60M from the current crop of brands ($15-20M) plus the GFG acquisition ($40M). This run rate of EBITDA is expected to kick in by Q4’21 to Q1’22, absent any major Covid resurgence, which is not yet showing up. CEO, Andy Wiederhorn, predicted that there would continue to be a certain amount of “noise” in Q3, and that Q4 would begin to demonstrate the fundamental potential of the newly expanded portfolio of brands.

Important progress was made at the most important (pre-GFG) brands, namely Fatburger, Buffalo and Hurricane. In Q2’21 vs. Q2’19: Fatburger SSS were up 6.1%, Buffalo Café was up 18% and Hurricane Grill and Wings was up 24%. The developmental pipeline is promising as well. Franchisees opened 10 new locations in Q2, up from 5 in Q1, with another 32 locations anticipated to open through the end of 2021. In terms of signings, 12 new deals, for 99 locations including a 50 unit agreement in Mexico and 40 units in France, were completed in Q2, and the total ’21 signings through 6/30 amounted  to 128 intended locations.

Based on AUVs, same store sales trends, and the developmental pipelines, there is quantitative reason that 2019 can appropriately be viewed as the base year (with $55-60M of Adjusted EBITDA) on which to build. Additionally, as discussed on the conference call, there is a “kicker’ in the story, acquired within GFG, namely a cookie manufacturing facility operating far below capacity. The summary above provides a concise summary of the contribution that GFG makes to the FAT portfolio, as well as an indication of the potential from the manufacturing arm. The possibility here, as suggested by management, is for an additional $15M of annual EBITDA, since there are fourteen brands within the FAT portfolio that could potentially sell dough based products produced at this facility.

CONCLUSION: Provided Above

Roger Lipton



We have been reporting on FAT Brands’ (FAT) progress, and its emergence as an increasingly substantial multi-branded restaurant franchisor, since January ’21, and our previous reports can be accessed by way of the SEARCH function on this website. This short update is mostly to report that their recently announced acquisition of Global Franchise Group (GLG) and the associated $350M financing has been completed in what must be record time.

On June 28th, the Company announced the planned acquisition of Global Franchise Group (GLG), which triples the number of systemwide units in FAT’s portfolio to more than 2,000, increases the number of brands from nine to fourteen, and increases the potential EBITDA by approximately 67%. Since the number of common shares to be issued is only about 20% of the common shares to be outstanding post-merger, the GLG acquisition is substantially accretive to EPS and EBITDA/share.

On July 6th, the 8-K filing reported on the finalized definitive Purchase Agreement, and the indication that the $350M in new debt would be completed on or about 7/22/21.

On July 22nd the acquisition of GLG was completed, and the completion of the $350M financing was announced this morning, July 27th.

This important acquisition was therefore completed in less than 30 days from announcement to completion, including a major financing.

To management’s credit.

Roger Lipton




FAT Brands (FAT) announced this morning an agreement to acquire Global Franchise Group (GLG), which is the franchisor and operator of five quick service concepts: Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker. This appears to be a potentially transformative transaction for FAT Brands, a rapidly emerging multi-brand franchisor of quick service and fast casual restaurant concepts.

We refer readers to our previous articles describing FAT Brands (use the SEARCH function on our Home Page). In summation, FAT currently owns nine restaurant brands: Fatburger, Johnny Rockets, Buffalo’s Café, Buffalo’s Express, Hurricane Grill & Wings, Elevation Burger, Yalla Mediterranean, Ponderosa and Bonanza steakhouses. Of note is that FAT Brands approximately doubled the size of their portfolio with the acquisition last September of Johnny Rockets. Of equal importance is that a new securitized credit line raised $144M this past spring, reducing the interest rate on the existing long term debt by about 300 bp to 5.92%, while providing about $50M for future acquisitions.

The new transaction appears to be transformative in terms of scale and cash flow generation per share. There is no doubt a great deal more information to be provided to shareholders but today’s release indicates that systemwide sales for the FAT portfolio will approximately double to $1.4B. Management stated this morning that “the acquisition is expected to eventually increase annual EBITDA by approximately $40M to approximately $55-$60 million….the five new restaurant concepts have been very resilient coming out of the pandemic….furthermore we will acquire GFG’s manufacturing operations, which will provide greater efficiencies and incremental revenue opportunity to our company.”

We have provided a table below which, based on the guidance so far provided, appears to more than double the free cash flow per share of FAT Brands. We took the current post pandemic guidance of $15-20M of EBITDA, and added the $40M from GFG, subtracting our estimate of new debt expense (@5.92%) and newly issued preferred dividends (at 8.25%). As the table shows, FAT free cash flow generation could grow from about $0.84/share to $1.70/share. This estimate is admittedly rough, based on a limited amount of information so far available, but provides an order of magnitude of the acquisition’s effect.

FAT Brands common stock, while trading at an all time high, is selling at an obviously modest level relative to the new potential $1.70 of FCF per share, about double previous expectations.

Roger Lipton



There have been several recent significant announcements for FAT Brands, Inc. (FAT), a rapidly growing multi-brand restaurant franchisor that is within reach, in the next 12-24 months, of $1B in portfolio systemwide sales.


From a financial and operational standpoint:

Ken Kuick, 52 years of age, previously CFO at Noodles & Company (NDLS), a publicly held company with 448 restaurants (372 company operated and 76 franchised) has been appointed CFO at FAT Brands, effective immediately. Kuick’s background, especially with the improved positioning of NDLS over the last several years, and their recent emphasis on digital ordering, qualifies him especially well for the position at FAT. Moreover, his decision, as well as that of Sussman and Rosen, described below, to join the rapidly growing FAT Brands, is a testimonial to their view of FAT’s future.

From a legal standpoint:

Allen Sussman, previously with Loeb & Loeb LLP in L.A., is newly appointed as General Counsel. At Loeb & Loeb he was a partner in the Capital Markets and Corporate Practice Groups, shepherding FAT through its IPO and acquisitions.

From an investment capital standpoint:

Rob Rosen has been added as EVP Capital Markets. Rosen has over 30 years of experience in structured finance, banking and lending, working with Fleet Bank, Kidder Peabody, The Bank of Tokyo and Black Diamond Capital Management


Separately, FAT Brands filed an S-1 shelf registration for a total of up to $500M of corporate securities, to be sold “from time to time”. The mix of offering is mostly to be defined, covering common stock, preferred stock, debt, warrants, subscription rights, and units.

Also filed is a registration for an underwritten offering of $10M worth of FAT’s Series B 8.25% cumulative preferred stock. There is currently $21M of this preferred (FATBP) outstanding.

The executive additions and financial announcements referenced above are obviously in support of the management’s announced intention of adding, within a matter of months, to their seven franchised restaurant brands.

Roger Lipton




FAT Brands (FAT) continues to grow its multi-branded system of franchised restaurants, now with 650 franchised stores in their portfolio, and the ability to grow much further. The recently reported first quarter, obviously still affected by the Covid pandemic, was in line with expectations and sets the stage for growth within the current portfolio and the acquisition of additional brands in the near future. As we have written in the past (use the SEARCH function on our Home Page), the Balance Sheet, while leveraged, seems manageable. Based on expectation of normalized post-pandemic cash flow, lenders are prepared to go further. The Enterprise Value of FAT seems high on the surface relative to reported results, but post-pandemic expectations indicate that the Enterprise Value is substantially below larger multi-branded peers. If results come through as expected, the valuation spread should narrow.


FAT Brands reported operating results for the quarter ending 3/31/21, with progress on multiple fronts. It should be noted that gross revenues and bottom line results are heavily influenced by the acquisition in September, 2020 of Johnny Rockets, which substantially increased the total number of franchised locations within the FAT portfolio.

Compared to Q1/20: Total Revenues were up 50% to $6.6M, System-wide sales growth was 35.3%. U.S sales growth was 28.1%, Rest of World sales growth was even higher, at 54.2%, because Johnny Rockets is more developed outside of the US. System-wide same store sales growth was 7.8%, US SSS was 7.8%. Rest of World SSS was up 4.9%. Income from Operations was $104k vs. a loss of $578k in ’20. After higher interest ($2.748M vs. $2.074M) and a couple of minor changes, the GAAP net loss was flat at $2.43M vs. $2.37. Corporate EBITDA was $585k vs. an EBITDA loss of $362k in Q1’20.  Adjusted EBITDA was $1.1M vs. $283k. Within the first quarter, advertising expense was $1.2M vs. $.9M, refranchising losses were down 100k to $0.4M, G&A was $4.9M vs. $3.5M, which included increases in compensation and legal expenses, partially offset by lower accounting and T&E. Overall, as expanded upon with commentary from the conference call below, results were consistent with expectations and set the stage for more normalized results as ’21 unfolds.

The balance sheet at 3/28/20 does not reflect the major transaction, with affiliate, Fog Cutter Capital, pending in Q2, but does reflect the completion of an offering of $144M of Fixed Rate Asset-Backed Notes. As the Company has described before, and we have written about, the new financing reduces the average fixed interest rate of the debt from 8.75% to 5.92%. The further availability of similar capital, as well as the merger, set the stage for the addition of more franchising brands.


As pointed out on the conference call, the strongest brands in Q1 were Fatburger, Buffalo’s and Hurricane Grill, with system-wide sales growth of 18%, 19% and 16% respectively. SSS at those brands were also up: 6%, 26% and 20% respectively. Very importantly, versus Q1’19: Buffalo’s increased 9% and Hurricane Grill was up 10%. The pandemic was still an important influence on results as 107 locations were still closed, primarily at Johnny Rockets’ special venues and within the Ponderosa/Bonanza steakhouse brands.

The total store count was 651 system-wide at 3/31, with 5 locations opened in Q1, 3 more since then, and another 36 to come in ’21. FAT still has 107 temporarily closed locations, expected to reopen in Q2/Q3.  In addition to previously announced multi-unit deals in France, Kuwait and Africa, new development agreements have been signed in California, Arizona and Mexico.

Management reiterated, and updated their previous guidance, including the acquisition of Johnny Rockets, in a normalized post-Covid environment. Expectations are based on demonstrated results from calendar ’19, with the addition of a full year from Elevation Burger (acquired in mid ’19) and the most important contribution from Johnny Rockets. As presented by CEO, Andy Wiederhorn, had the pandemic not come along, revenues without Johnny Rockets would have been $23.5-$24.0M in ’20 and Johnny Rockets would have added $10-12M, for normalized total Revenues of $34-$36M. 2019 Adjusted EBITDA in ’19 was $7.9M, a full year from Elevation Burger would have brought that close to $9M and Johnny Rockets would have added an additional $9-10M. Total normalized EBITDA would therefore be $18-20M once the pandemic is out of the way. Management best guess seems to be that results will normalize by Q4’21 or Q1’22.

Relative to growth in units, management suggested that the expected 40-50 new locations in ’21, while gratifying, has no doubt been reduced by the pandemic. Therefore, with sales steadily improving as the worldwide pandemic winds down, a normalized environment should at least match that pace in ’22 and beyond.

Lastly, management reiterated their active consideration of further acquisitions, and the expectation that a transaction will be concluded in a matter of months. More capital is available from lenders, so cash, the common stock, and the 8.25% preferred stock, could all be potential currency.

CONCLUSION: Provided at the beginning of this article



As our readers know, Fat Brands (FAT) has established itself as a multi-branded restaurant franchising company, with about 700 locations, spread among seven brands, the largest and most rapidly growing being Fatburger and Johnny Rockets. Our previous reports describing Fat Brands can be found by way of the SEARCH function on our Home Page.

Management had previously indicated their expectation that the securitized debt which was in place at yearend would be expanded, with a reduced interest rate, in the first half of ’21. On schedule they announced this morning completion of an offering of $144M of Fixed Rate Asset -Backed Notes, structured through their royalty receiving subsidiary. This new facility has an average fixed interest rate of $5.92% per annum, replacing and expanding $80M of notes that carried an average interest rate of 8.75%, and leaving Fat Brands with $64M of availability for future acquisition.

We have no relationship with the underwriters, but, since some firms are better than others in accessing capital, we point out that Jefferies LLC acted as structuring agent and co-lead bookrunner, along with Cadence Securities LLC.

Separately, CEO, Andy Wiederhorn, updated the current fundamentals at Fat Brands, saying “systemwide sales are recovering rapidly, fueled by the return of in-store dining combined with a continued high volume of direct online ordering and third party delivery. On an aggregate basis, YTY sales of new franchise locations have already exceeded both 2019 and 2020 calendar year sales figures, creating a pipeline of over 200 additional units contracted for development.”


From a broader perspective, while the transaction described above clearly indicates that money is very much available, at surprisingly attractive rates if a Company presents itself well, the chart just below is instructive. It shows how, in the current historically low interest rate environment, demand from investors of all stripes have driven interest rates, in this case for “Junk Bonds” to the lowest level in decades. The age old term is “reaching for yield”. We credit Fat Brands’ management for making good use of the current low interest rate environment to strengthen and build their long term positioning within the franchising industry.


Aside from updating the progress at Fat Brands, we have one word of advice to our readers that are operating businesses in the current environment that makes equity and debt available at a very modest cost: ENJOY !

Roger Lipton





FAT Brands (FAT) reported  calendar ‘20 results last week, including an update on trends to date in Q1’21. Calendar 2020 was substantially distorted by Covid-19, but management of FAT Brands managed well, operationally and financially, completing a major acquisition, productively merging with their affiliated parent company, and enlarging the balance sheet to allow for further expansion. As the post-pandemic restaurant world unfolds, FAT Brands will have over 700 franchised locations among their current nine brands, planned positive same store sales with about 10% new unit growth, normalized annual EBITDA approaching $20M and ongoing acquisition opportunities. The current leveraged balance sheet is manageable based on projections and management seems to have credibility with the lending community. In terms of valuation, current Enterprise Value approaching $200M is admittedly expensive relative to history, but compared, to estimated post-pandemic EBITDA from the current portfolio of brands, it is only about half of its larger peers.


One of the best performing restaurant stocks in calendar ’20 was FAT Brands (FAT), approximately tripling from $2.00 to $6.00. From the low of about $1.00 in late March’20, it has been above $10.00 recently, and a ten bagger from low to high within twelve months is likely worth studying, at the very least.  We established coverage of FAT Brands (FAT) in January, and our basic report is accessible by SEARCHing for FAT on our Home Page or clicking through the link just below:


California based FAT Brands (FAT) has established a franchising platform that supported, as of 12/31/20, 679 locations. The most important of the nine brands, in terms of current size and expected growth, are Fatburger and Johnny Rockets. Also growing, though smaller, are Buffalo’s Café (and Buffalo’s Express), Hurricane Grill & Wings, Yalla Mediterranean, and Elevation Burger. Currently least important, with admittedly unreliable prospects, are Ponderosa and Bonanza. The briefest summary is that FAT Brands has emerged as a diversified franchisor, with a post pandemic normalized EBITDA that should, according to management, approach $20M. The balance sheet, though leveraged relative to historical results, seems manageable once general economic conditions normalize and current sales improvement supports that expectation. Moreover, most of the $93M of long term debt may be renegotiated with a lower interest rate.


We will summarize below (1) The operating results for calendar ’20. (2) The progress in terms of systemwide unit growth (3) The balance sheet expansion over the last twelve months (4) The significant merger with previous affiliate, Fog Cutter Capital (5) The current situation in terms of same store sales and indications of organic growth (6) Management guidance relative to balance sheet improvement, further acquisitions and post-pandemic corporate EBITDA.

(1)There was obviously a great deal of pandemic-related “noise” in calendar ’20, continuing into early ’21, as well as operating Adjustments relating to financing progress and acquisitions. Accordingly, we will describe the GAAP results, as well as the Adjustments leading to Adjusted EBITDA for the year. The Net Operating Loss for the year was $14.9M. Working toward Adjusted EBITDA: add major Adjustments such as: impairment of goodwill and other intangible assets of $9.3M, a net loss of $3.8M from re-franchising, $1.7M from a mismatch of franchise advertising expenses vs. receipts, acquisition costs of $1.2M, depreciation of $1.2M, and interest expense of $4.9M, partially offset by income tax benefit of $3.7M, a change in fair value of derivative liability of $0.9M and a gain on contingent consideration payable  of $1.7M, and a few less material addbacks, works down to an Adjusted positive EBITDA of $1.4M for the year.

The year’s results were substantially affected, not only by the pandemic but by the acquisition in September of Johnny Rockets, which almost doubled the number of locations under the FAT franchising umbrella, so fourth quarter revenues were easily the best of the year. Most important, as presented in the year end Investor Presentation, companywide same store sales, for stores open during both periods and owned for over a year, steadily improved from a low of minus 30.1% in Q2 to a negative 9.4% in Q4. Management indicated on the conference call that sales have continued to improve in Q1’20 and the Investor Presentation shows system wide sales growing steadily from $7.9M weekly in January to $9.6M in the week ending 3/14.

(2) Unit growth proceeded in calendar ‘20, in spite of the pandemic, with 62 new openings in the year, 29 in Q4 alone, both of which include Johnny Rockets prior to ownership. In recent months new multi-unit development deals in France, Kuwait , Congo, Illinois, D.C., California, Arizona and Alabama call for up to 56 new locations, and the total pipeline is over 200 units. Management indicated on the conference call that 34 locations are currently under construction and 10% annual growth (about 70 stores) is the objective.

(3)The balance sheet was substantially expanded, as a new $40M facility (with a weighted average interest rate of 8.75%) was put in place in September, for working capital and to fund the acquisition of Johnny Rockets. Long Term Debt, including $19M within current obligations, is $93M. A year earlier, that total was just under $30M. There is a total of $38M in Preferred Equity as well. Management indicated their expectation of refinancing a major portion of the total of $85M in notes with substantially better terms. As we said above, the debt, while substantial based on historical results, is manageable relative to normalized post-pandemic EBITDA, and current sales improvement supports that expectation.

(4)The recent merger with Fog Cutter Capital Group was a significant corporate event.  It increased the FAT public float to 44% of the fully diluted shares. By merging the entities, FAT stock becomes available for acquisition, because Fog Cutter no longer needs at least 80% of ownership to maintain their $100M of tax loss carryforward, which protected their share of FAT income. Critically, that NOL now protects FAT income from future taxes. Fog Cutter Capital, now owns 58.4% of voting power of common stock.

Full disclosure: as disclosed in the 10-K filing, there are a handful of litigation items, none of which involve restaurant operations. Per the 10-K, “the Company does not believe that resolution will result…material adverse effect….but has accrued $5.68M for the matters mentioned above..”

(5) As mentioned above, same store sales have been steadily improving, there is a strong development pipeline, and new store growth is guided to about 10% annually. As indicated on the conference call, most of the unit growth is coming from the two largest brands, Fatburger and Johnny Rockets. The notable laggards, as the pandemic runs it course, are Ponderosa and Bonanza.

A particular highly successful operational focus at Fatburger/Buffalo Express has been the use of Chowly (a POS integrator for third party delivery) and well as HNGR for native online-ordering and delivery-as a service. Total Delivery and To-Go Sales at Fatburger moved from .95M in January ’20 to $1.3M in August, popped to $1.8M with Chowly and HNGR in September, and hit a new high of $2.1M in December.

(6) Management continues to move expeditiously to expand their platform, by way of organic growth (a 10% unit growth objective) as well as acquisition of other brands. To that end, a further expansion of the balance sheet is planned within the next six months, raising more capital as well as reducing the interest rate.  Systemwide sales were over $107M in Q4, and, based on the numbers through 3/14/21, as shown in the Investor Presentation, should be $120M or higher in Q1’21. In terms of EBITDA guidance, management continues to use 2019 pre-pandemic, pre-Johnny Rockets, Adjusted EBITDA as a base run rate, and that was $7.7M. Elevation Burger was largely absent from that base, which would add about $1.3M more, The addition of about $9.0M from Johnny Rockets provides a base case of $18M of Adjusted EBITDA once the pandemic has run its course.

CONCLUSION: Provided at the beginning of this article




FAT BRANDS, INC. (FAT) has come a long way over the last several years. The company has established a multi-branded restaurant franchising company, now with over $700M of systemwide sales within the portfolio’s nine brands. The units are mostly within the fast casual segment of the restaurant industry, a generally good positioning within the post-Covid convenience driven consumer economy. The performance since becoming publicly owned three years ago has been sufficient to leverage the balance on acceptable terms and, in spite of the operating challenges within the last twelve months, fresh capital has been raised and an important acquisition doubled the company’s reach. Most recently, a merger with the corporate parent simplifies the situation and provides a $100M tax loss carryforward.

The company has guided to a doubling of the 2019 pre-Covid cash flow (EBITDA) generation once post-Covid normalization takes hold. Beyond that, $12M of current cash, an apparent ability to add to existing debt arrangements and potentially refinance or improve terms on current debt should allow for further acquisitions. Though, as Yogi Berra said “predictions are always difficult, especially about the future”, aside from the normal macro concerns, the performance of FAT will depend upon (1) continued reasonable performance, supported by the corporate team, of the existing portfolio, (2) the integration of the recent Johnny Rockets (JR) acquisition, including reduction of the previous JR G&A, as shown in our operating model below (3) future acquisitions generating an attractive return. While we cannot predict the timing of post-Covid “normalization”, we expect Fat Brands to continue on its growth path, especially if the current low interest rate environment prevails. The Enterprise Value of FAT, at about $180M is about 12x the post-Covid EBITDA potential, 30%-40% less than the valuation accorded larger publicly held pure franchising companies. As FAT demonstrates the performance of its current brands and the portfolio expands further, there is room for the valuation of FAT common stock to grow as well.


FAT Brands, Inc. (FAT) has been publicly held since late 2017, with only about two million shares publicly outstanding. Though this is about to change, 81.5% of the shares issued have been owned by Fog Cutter Capital Group Inc. Management, led by CEO, Andrew Wiederhorn, has established a platform to support a portfolio of restaurant franchising companies. The object is to spread the administrative and promotional costs, as well as using best practices to improve and build the individual brands.

Per: The most recent Investor Presentation

The two largest contributors to current FAT revenues are the first and last acquisitions, Fatburger and Johnny Rockets.

In order of purchase: Fatburger was purchased by Fog Cutter in 2003, transferred to FAT prior to the IPO in October ‘17, Buffalo’s Café and Buffalo’s Express were purchased by Fog Cutter in 2011, transferred to FAT prior to the IPO, Ponderosa and Bonanza Steakhouses were purchased in October ’17 in conjunction with the IPO, Hurricane Grill & Wings was purchased in November ‘17, Yalla Mediterranean in December ‘18, Elevation Burger in June ‘19, and Johnny Rockets in September’20. In total, FAT’s portfolio today consists of over 700 franchised locations with systemwide sales over $700M. Each concept is described in detail below.


The founder, CEO and President is 54 year old, Andrew Wiederhorn. He also founded Fog Cutter Capital Group, Inc. After earning a B.S. in Business Administration from USC in 1987, he founded and was CEO of Wilshire Financial Services Group and Wilshire Credit Corporation. He has served on numerous philanthropic Boards, the Citizens Crime Commission of Oregon, the Economic Development Council for Beverly Hills Chamber of Commerce. He was featured as Fatburger CEO in 2013 on “Undercover Boss”, still available and worth watching on youtube. We would be remiss not to mention that Wiederhorn pleaded guilty to filing a false tax return in 1998, by way of which he violated an ERISA statute. He paid a total of $4.6M in fines and fourteen months in federal prison in ’05-’06. Over two decades removed from this obviously unfortunate episode, based on his ability to raise approximately $150M from the capital markets, Wiederhorn seems to have overcome possible doubts about his personal integrity as well as the prospects for Fat Brands.

The CFO is 47 year old Rebecca Hershinger. After earning a Business Degree from Georgetown University and an MBA from Wharton, she studied at Oxford and was an analyst at JP Morgan Chase. With Fat Brands since 2018, she was previously CFO of a publicly traded global children’s media company.

The President of the Casual Dining Division is 64 year old Gregg Nettleton, with FAT since October ’17. Prior to that he was President and CEO of an international consulting firm. His restaurant experience includes Board Membership at Black Angus Steakhouses, Chief Marketing Officer at IHOP and Interim Chief Marketing Officer at Applebee’s.

The Chief Operating Officer of the Fast Casual Division since February 2020 is 36 year old Jacob Berchtold. He joined Fatburger in 2005, out of Arizona State University, as a restaurant manager and member of the new store opening team. He has served in a wide variety of operational management positions with Fatburger company and franchised locations, in China, S.E. Asia, the Middle East and North Africa.

The Senior VP of Finance is Ron Roe, previously with Fog Cutter Capital and Piper Jaffray.

The Chief Marketing and Chief Development Officers are Thayer and Taylor Wiederhorn,  respectively, both of whom have spent over 10 years with Fog Cutter Capital, Fatburger and Buffalo’s Café/Express.

The Board of Directors is headed by Chairman, Edward Rensi, former President of McDonald’s, USA. Other Board members include James Neuhauser of Stifel Nicolaus, Turtlerock Capital, Fifth and Co. and the Bank of New England: and Squire Junger of Knight Consulting and Arthur Anderson.


It is difficult for a relatively small publicly held company to build a portfolio of high quality restaurant brands, especially when there are hundreds of billions of dollars competing for attractive acquisitions. The process, of necessity, must focus on brands that seem troubled or are too small for multi-brand operators like Restaurant Brands (QSR, with Burger King, Tim Horton’s, Popeye’s), Yum Brands (YUM, with Taco Bell, KFC, Pizza Hut, Habit Burger), Bloomin’ Brands (BLMN) or privately held Inspire Brands (franchising Arby’s, Buffalo Wild Wings & Sonic). FAT, as a relatively small new competitor must deal with a lack of purchase currency: neither a large equity capitalization or inexpensive debt.

It is understandable therefore that Fat Brands, after going public in late 2017, with just a couple of brands, the most important of which was Fatburger (the first acquisition), has had to piece together a portfolio of brands too mature, not large enough, or not growing fast enough to attract a higher price from other bidders. It was on that basis that Hurricane, Ponderosa and Bonanza, Yalla and Elevation were acquired. By mid-2020, FAT had established an operating record good enough to monetize the existing royalty stream and raise capital at an acceptable interest rate to acquire Johnny Rockets (JR). JR has instantly become the “bookend” to Fatburger, between them providing the bulk of the current royalty stream and growth potential. As described further below, the post-Covid and post-JR cash flow  potential is expected to be at least a doubling of that in pre-Covid 2019. The currently liquid balance sheet plus further monetization of the royalty stream at an increasingly attractive interest rate, would allow for further acquisitions to build upon the newly enlarged base.


Fatburger – (The Last Great Hamburger Stand), was founded in Los Angeles, California in 1947. It serves a variety of freshly made-to-order, customizable, big, juicy, and tasty Fatburgers, Turkeyburgers, Chicken Sandwiches, Impossible™ Burgers, Veggieburgers, French fries, onion rings, soft-drinks and milkshakes. Fatburger has counted many celebrities and athletes as past franchisees and customers, and they believe this prestige has been a principal driver of the brand’s staying power. As of December 29, 2019, there were 163 franchised and sub-franchised Fatburger locations across eight states and 18 countries.

Per the most recent Fatburger Franchise Disclosure Document: it costs from $459K to $988K to begin operations, including the initial franchise fee of $50k. Current ongoing fees include 6%% royalty plus national ad fund of 1.9% within Los Angeles DMA or 0.95% outside of LA DMA, plus 2.0% local ads. Item 20, Page 60, shows 163 systemwide outlets (all franchised)  (79 domestic and 84 Int’l) at 12/31/19. The areas with US states with 5 or more locations are: CA (50), NV (15), WA (5), Canada (54), and China (5).  During fiscal 2019 the domestic system grew by 9 units.  

Buffalo’s Café  (and Buffalo’s Express) – Buffalo’s Café was established in Roswell, Georgia in 1985, Buffalo’s Cafe (Where Everyone is Family) is a family-themed casual dining concept known for its chicken wings and 13 distinctive homemade wing sauces, burgers, wraps, steaks, salads and other classic American cuisine. Featuring a full bar and table service, Buffalo’s Cafe affords friends and family the flexibility to enjoy an intimate dinner together or to casually watch sporting events. Beginning in 2011, Buffalo’s Express was developed and launched as a fast-casual, smaller footprint variant of Buffalo’s Cafe offering a limited version of the full menu with an emphasis on chicken wings, wraps and salads. Current Buffalo’s Express outlets are co-branded with Fatburger locations, providing  complementary concepts that share kitchen space and result in a higher average unit volume (compared to stand-alone Fatburger locations. As of December 29, 2019, there were 17 franchised Buffalo’s Cafe and 87 co-branded Fatburger / Buffalo’s Express locations globally.

Per the most recent Buffalo’s Cafe Franchise Disclosure Document: For Buffalo’s Cafe it costs from $407k to $1,009k, including the initial franchise fee of $50k, to begin operations. Current ongoing fees include 6% royalty plus 2.0% for the Creative Ad Fund, plus 2.0% local ads. Item 20, Page 60 shows 18 systemwide units (14 domestic) operating at 12/31/19, all franchised. The distribution of units is: GA (14) and Qatar (4). The system unit count was unchanged during ’19.

Relative to the co-branding of Buffalo’s Express within Fatburger outlets, it costs $36.5K to $88K to begin operations of a co-branded operation, plus the initial franchise fee of $25k. The ongoing fees are consistent with those paid by the Fatburger franchise partner. Per the FDD, “since 2012 Fatburger has permitted a total of 34 of its franchisees (in 87 locations) to also display the Buffalo’s Café marks, trade dress, and serve a limited menu relative to that described above.

Ponderosa & Bonanza Steakhouses – Ponderosa Steakhouse, founded in 1965, and Bonanza Steakhouse, founded in 1963, offer the quintessential American steakhouse experience, for which there is strong and growing demand in international markets, particularly in Asia and the Middle East. Ponderosa and Bonanza Steakhouses offer guests a high-quality buffet and broad array of affordably priced steak, chicken and seafood entrées. Buffets at Ponderosa and Bonanza Steakhouses feature a large variety of all you can eat salads, soups, appetizers, vegetables, breads, hot main courses and desserts. An additional variation of the brand, Bonanza Steak & BBQ, offers a full-service steakhouse with fresh farm-to-table salad bar and a menu showcase of USDA flame-grilled steaks and house-smoked BBQ, with contemporized interpretations of traditional American classics. As of December 29, 2019, there were 76 Ponderosa and 13 Bonanza restaurants operating under franchise and sub-franchise agreements in 16 states and five countries. There is not a current FDD for these brands, and the current stay at home economy is least promising for this portion of the FAT portfolio.

Hurricane Grill & Wings – Founded in Fort Pierce, Florida in 1995, Hurricane Grill & Wings is a tropical beach themed casual dining restaurant known for its fresh, jumbo, chicken wings, 35 signature sauces, burgers, bowls, tacos, salads and sides. Featuring a full bar and table service, Hurricane Grill & Wings’ laid-back, casual, atmosphere affords family and friends the flexibility to enjoy dining experiences together regardless of the occasion. The acquisition of Hurricane Grill & Wings has been complementary to FAT Brands existing portfolio chicken wing brands, Buffalo’s Cafe and Buffalo’s Express. As of December 29, 2019, there were 51 franchised Hurricane Grill & Wings and 2 franchised Hurricane BTWs (Hurricane’s fast-casual burgers, tacos & wings concept), across eight states.

Per the most recent Franchise Disclosure Document, dealing with domestic units: It costs from $491k to $1,088k to begin operations, including the initial franchise fee of $50k. Current ongoing fees include 6% royalty, plus 2% to nat’l ad fund, plus 2% spent on local ads. Item 20, page 63, shows 51 domestic units or int’l), all franchised plus 1 affiliated unit in FL operating at 12/31/19. The states with 2 or more locations are: AL (2), FL (36), and NY (9). During calendar 2019, the system declined by 6 units. Relative to the Hurricane BTW franchise, it varies from the above by the fact that the cost to begin operation ranges from $260k to $521k, including the $5k initial franchise fee.

Yalla Mediterranean – Founded in 2014, Yalla Mediterranean is a Los Angeles-based restaurant chain specializing in authentic, healthful, Mediterranean cuisine with an environmental conscience and focus on sustainability. The word “yalla” which means “let’s go” is embraced in every aspect of Yalla Mediterranean’s culture. Yalla offers wraps, plates, and bowls in a fast-casual setting, with cuisine prepared fresh daily using, GMO-free, local ingredients for a menu that includes vegetarian, vegan, gluten-free and dairy-free options. The brand demonstrates its commitment to the environment by using responsibly sourced proteins and utensils, bowls and serving trays made from compostable materials. Also featured are an on-tap selections of craft beers and fine wines. Originally acquired as company operated, two restaurants had been franchised as of December 29, 2019, with the intention of franchising the remaining five existing Yalla locations to franchisees and expand the business through additional franchising.

Per the most recent Yalla Franchise Disclosure Document: If a current company store is being purchased, the franchise will pay Fat Brands from $500k to $700k, depending on the existing location, which will include assets and initial franchise fee ($50k). Stores to be constructed will cost $525k to $988k, including the $50k initial franchisee fee, to open. Current ongoing fees include 6% royalty plus 2.0% to the National Ad Fund, plus 2.0% for local ads.  Per the most recent Franchise Disclosure, Item 20, Page 57 shows 7 systemwide units, unchanged in the last two years, with the 2 stores moving from company to franchisee during 2019. All locations are in California.

Elevation Burger – Established in Northern Virginia in 2002, Elevation Burger is a fast-casual burger, fries, and shakes chain that provides its customers with healthier, “elevated” food options. Serving grass-fed beef, organic chicken, and French fries cooked using a proprietary olive oil-based frying method, Elevation maintains environmentally-friendly operating practices including responsible sourcing of ingredients, robust recycling programs intended to reduce carbon footprint, and store décor constructed of eco-friendly materials. Ownership of the Elevation Burger brand aligns with our the corporate mission of providing fresh, authentic and tasty products, complementing the Fatburger brand. As of December 29, 2019, there were 45 franchised Elevation Burger locations across nine states and four countries.

Per the most recent EB Franchise Disclosure Document: It costs from $459k to $988k to begin operations, including the initial franchise fee of $50k. Current ongoing fees include 6% royalty plus 1.5% national ads plus 2% local ads.  Per the most recent Franchise Disclosure, Item 20, Page 60 shows 48 total systemwide units (27 domestic + 19 int’l franchised) + 2 Affiliates operating at 12/31/19. There are at least 2 units operating in: ME (4), MD (5), MI (2), NY (4), PA (5), VA (4) (US Total of 27), Bahrain (3), Kuwait (8), Qatar (4), UAE (3) (Int’l Total of 19). The two Affiliated units are in VA. The total number of units declined by 4 in fiscal 2019.

Johnny Rockets – Founded in 1986 by Ronn Teitelbaum in Los Angeles, originally a 20 stool counter operation on Melrose Avenue, presenting a 1940s vintage style malt shop. The first unit, featuring jukeboxes, red-vinyl booths and chrome counters, opened with fans such as Bob Hope and Elizabeth Taylor. The chain grew to 200 locations by 2007 when it was acquired by RedZone Capital. By 2013, when Sun Capital Partners bought it, there were 300 locations in 30 states and 16 countries, including more than a dozen in amusement parks and cruise ships. They typically offer lunch and dinner, featuring made to order burgers, crispy fries, chili, hand-spun shakes and malts, plus sandwiches and other items. Today, under FAT’s ownership there are 322 locations operated by 129 franchisees, having reported 2019 systemwide sales of $316M. The average royalty in 2019 was 4.3%.

Per the most recent JR Franchise Disclosure Document, dealing with domestic units: It costs from $597k to $1,189k to begin operations, including the initial franchise fee of $50k. Current ongoing fees include 6% royalty, plus 2% to a marketing fund, plus 2% spent on local ads. Item 20, page 51, shows 175 domestic units (not including cruise ships or int’l) (162 F + 13 C ) operating at 12/31/19. The US states with 5 or more units are in CA (30), CT (5), FL (14), GA (6), MD (8), NV (12), NJ (6), NY (10), PA (5), RI (5) and TX (5). During calendar 2019, the domestic system declined by 22 units (20F + 2C). Internationally: SEC filings show 177 int’l units as of 9/30/20, with the heaviest concentration in Chile, Korea, Brazil and Mexico, with units also operating in over twenty five other countries.


The company raised a total of $49M ($40M of “M-2” plus $9M of “Series B”, below) in the third quarter, which funded the Johnny Rockets acquisition and provided a $12M unrestricted cash cushion going forward. In addition to the cash, as of 9/30/20, there were current assets of $31.2M almost exactly matching $31.8M of current liabilities, long term debt, net of $1.6M current portion amounting to $78.4M. There was also (net of offering costs, OID, etc.) $13M of Preferred Stock (not including $13M to be issued in Q4 in conjunction with the Fog Cutter transaction, discussed below), along with $12.7M of equity. The long term debt is obviously substantial relative to the historical trailing EBITDA, but a great deal of it was incurred to purchase Johnny Rockets, with a cushion for a future purchase. Relative to the post-Covid expectation, including Johnny Rockets, of EBITDA in the range of $15-16M, the long term debt to EBITDA ratio drops in half to a more tolerable 5.2x. The table below shows that the weighted average interest rate on the Series 2020 notes is 8.75%. Management has noted their intention to refinance these notes at a lower interest rate in H1’21.


The Company announced in late 2020 a plan to merge with Fog Cutter Capital. FAT is now the surviving Company and individual shareholders of Fog Cutter own common shares of FAT with the total outstanding unchanged. Presumably to offset the elimination of the $38M receivable from Fog Cutter, each share of FAT common shareholders received .232 shares of FAT Brands’ 8.25% Series B Cumulative Preferred Stock (FATBP) which have recently been trading in the area of $16/share. The company has not yet filed information relative to the post-merger balance sheet.

The most important advantages of this transaction are (1) Fog Cutter no longer has to own over 80% of FAT to maintain its $100M tax loss carryforward, so FAT can use its stock for acquisitions (2) FAT gets the use of the tax loss carryforward  (3) The public float of FAT increases to 46% of the fully diluted shares (4) Intercompany balance sheet items are eliminated.


It is clear now that 2020 was a lost year in terms of revenues, earnings, and cash flow progress for most restaurant companies. In spite of that, Fat Brands made meaningful progress, building on their base of brands with the Johnny Rockets acquisition as well as positioning the balance sheet for long term growth. Though we cannot predict at what point normalized post-Covid operations will be in place, our exercise is to take the 2019 platform, breaking the royalty stream down by brand, and then project forward in a reasonable fashion to the post-Covid earning and cash flow power of the FAT franchise portfolio.  In addition to the numbers shown below, it is worth noting that a total of 57 new locations  have opened across the portfolio in the first nine months of 2020, up from 52 in 2019, plus six ghost kitchens. We have, however, projected forward to a post-Covid environment assuming no growth in units or same store sales.

By definition, the projections cannot be precise, either numerically or within a timeframe. However, we have pieced together the model just below from SEC filings and investor presentations, with relevant assumptions indicated by footnotes. Our model indicates that the company conclusion that pro forma EBITDA, post-Covid with the inclusion of Johnny Rockets, could double or more from the $6.7M ($7.7M Adjusted) in calendar 2019 appears reasonable. Our most important assumptions are that the most important segments, namely Fatburger, Hurricane Grill and Johnny Rockets don’t deteriorate from their 2019 results and the G&A from Johnny Rockets can be cut from $11.9M to $6.1M annually.

 CONCLUSION : Provided at the beginning of this report




Fat Brands, Inc. (FAT) has been publicly held since late 2017, with only about two million shares publicly outstanding and over 80% of the total owned by Fog Cutter Capital Group Inc. Management has had the objective of establishing a platform to support a portfolio of restaurant franchising companies to spread the administrative and promotional costs, as well as use best practices to improve the individual brands.

The first brand owned was namesake, California based Fatburger. The Company, as of 12/31/2019 owned 9 brands: Fatburger, Johnny Rocket’s, Buffalo’s Café, Buffalo’s Express, Hurricane Grill and Wings, Elevation Burger, Yalla Mediterranean, Ponderosa & Bonanza, together franchising over 700 units worldwide.

There has been limited interest in this small capitalization franchising company over the last three years, but there have been several important fundamental developments within the last six months that have substantially enlarged the Company and could broaden the following. The developments are: (1) Purchase of Johnny Rocket’s (2) New long term financing (3) Recently announced merger with parent Company, Fog Cutter.

(1) Johnny Rocket’s, with 322 total operating locations (almost all franchised) increased the total number of systemwide locations in the FAT portfolio to 702.

(2) The Company raised $89M during  Q2 and Q3, by securitization of future royalties, and the issuance of preferred stock, which not only paid for Johnny Rocket’s ($25M) but has provided a structure for future acquisitions.

(3) The Company announced last week a plan to merge with Fog Cutter Capital. FAT will be the surviving Company and individual shareholders of Fog Cutter will own common shares of FAT with the total outstanding unchanged. Presumably to offset the elimination of the $38M receivable from Fog Cutter, each share of FAT common will receive .232 shares of FAT Brands’ 8.25% Series B Cumulative Preferred Stock (FATBP) which have recently been trading in the area of $18-20/share.

The most important advantages of the Fog Cutter transaction are (1) Fog Cutter no longer has to own over 80% of FAT to maintain its $100M tax loss carryforward, so FAT can use its stock for acquisitions (2) FAT gets the use of the tax loss carryforward (3) The public float of FAT increases to 46% of the fully diluted shares (4) Intercompany balance sheet items are eliminated.

We intend to present a more extensive analysis of Fat Brands, Inc. in early 2021. For the moment, the Company’s recent Investor Presentation has indicated that Pro Forma 2019 Royalties increased by 91% to $28.5M with the acquisition of Johnny Rocket’s. Without Johnny Rocket’s, royalties increased 23% to $14.9M and Pro Forma Adjusted EBITDA was up 54% to $7.7M. While 2020’s Covid-related limitations have predictably affected results, a total of 57 new locations will have opened across the portfolio, up from 52 in 2019. A total of six ghost kitchens will also have opened. Management has indicated that the post-covid projected EBITDA should be in the area of $14.5M on $33.8M of revenue. From a balance sheet standpoint, the post-merger total debt will be $85M and there will be a total of $38M in Preferred stock. As of 9/30/20 there is $12M of cash on the balance sheet.

We have been impressed by management’s ability to successfully establish a portfolio of brands that, in anything like a normal environment, can collectively provide a predictable stream of royalty revenues. The balance sheet is leveraged but seems manageable based on expectations. Assuming expectations prove to be realistic, management’s demonstrated financial agility should allow them to raise capital even more opportunistically and build on the current base.

We look forward to covering this evolving multi-brand franchising situation and will report further to our readers in early 2021.

Roger Lipton



FAT BRANDS INC (FAT), led by CEO, Andrew Wiederhorn, has assembled a group of internationally franchised brands, some better known than others but all of them challenged to varying degrees in recent years. The theory is to leverage operating expertise, marketing power, purchasing scale and administrative costs over independent brands, using an asset light franchising approach (zero company operated locations). Wiederhorn is the controlling shareholder of Fog Cutter Capital Group, Inc., which owns 81% of the common stock of FAT.

The liberal use of debt and preferred stock, as outlined just below, has allowed for the current ownership of:

Fatburger, a burger chain, founded in Los Angeles in 1947, now 168 locations, including 101 co-branded

Buffalo’s, casual dining, wings and classic American platters, GA founded in 1985, now 18 locations

Ponderosa & Bonanza steakhouse, founded in 1960s, now 83 locations

Hurricane Grill & Wings, casual dining, chicken wings, FL  founding in 1995, now 49 locations

Yalla, fast casual, healthy Mediterranean, now 7 locations

Elevation Burger, fast casual with grass fed and organic burgers, 2002 founding, now 41 locations

Systemwide sales in 2019 of these 366 locations (@ 6/30/20) was $395M.


As of 12/31/2019 shareholders’ equity was $5.4M (including goodwill and intangible assets of $55M). Preferred A stock obligation amounted to $15.3M. The current portion of long term debt was $24.5M and the remaining long term portion was $5.2M. Due from affiliates was $26M. The current ratio consisted of $10.5M of current assets and $45.6M of current liabilities.

By 6/30/2020, the balance sheet reflected shareholders’ equity of negative $3.5M (including goodwill and intangible assets of $37M). The Preferred A stock amounted to $15.5M. The current portion of long term debt was reduced to $661k, with the long term portion amounting to $43.9M. Due from affiliates was $34.7M. The current ratio had improved to reflect $10M of current assets against a much reduced $21M of current liabilities. The previous Long Term Debt had been replaced by a face amount of $40M of “Securitization Notes”, netting $37.3M after expenses and discounts, to be repaid from royalties as received. The blended average cash interest rate is 7.75%, which reduces the total weighted average cash cost of debt to 8.49%, decreasing annual interest expense by almost $2M per year.  There is also an “Accordion” feature, allowing for additional acquisition related borrowing.

Post the second quarter, on 7/13/20 FAT raised $8.2M from the sale of 8.25% Series B Preferred Shares and warrants exercisable at $5.00/share. Subsequent to this offering FAT entered into an Agreement to redeem and cancel the remaining Series A Preferred shares. The result was equity increased by $15M, with insiders converting $3M of Series A and accrued dividends into Series B Preferred. Also retired was warrants, exercisable at $7.20, to acquire 554,065 shares.


The first half of calendar ’20 is obviously distorted by the effects of the Coronavirus Pandemic, and the Adjusted EBITDA was a negative $361k. More importantly, the Adjusted EBITDA in calendar ’19 was $7.7M. The Company’s recent presentation talks about 41 additional Fatburger locations since acquisition, integration of Elevation Burger onto the the Fatburger operating platform, a turnaround in Hurricane Grill, from a negative 4.7% comp prior to acquisition to +6.4% in calendar ’19, including +8.3% in Q4’19. The overall portfolio store count has increased from 286 in calendar 2017 to 374 by 12/19 (including acquisitions). Most importantly, demonstrating the efficiency of the multi-brand platform, Total Costs and Expenses as a % of Revenues has come down from 97.7% in ’17 to 62.4% in ’19. It is on this basis that the Company raised $40M with their Securitization and, most recently in Q3, the additional $8.2M.


This “iconic brand”, as FAT management now terms it, has over 300 locations, spread over 129 individual franchise owners, which will bring the FAT portfolio to over 700 units in total. The new systemwide expectation of over $700M implies that the Johnny Rockets locations are expected to annualize at something like $1M per store. The purchase price is $25M, which will paid for by cash on hand plus the Accordion feature of the recent securitization. FAT management stated that they expect this acquisition to allow them to double their current (in calendar ’19) Adjusted EBITDA of $7.7M. The brief audio “conference call”, with no Q&A, described how FAT can leverage their operating platform with new purchasing power of $250M annually (about 30% or so of $700M), marketing (produced and booked internally at FAT), virtual restaurant offerings, dual branding and FAT’s knowledge of “the burger business”.


It is reasonable that Johnny Rockets, which is, indeed, a well known brand, could be reincarnated, even if reduced in size after the pandemic, under the right leadership. However, if it is so promising, why would Sun Capital let it go for $25M, especially when FAT management says it is capable of generating $7 or $8M of EBITDA.

Our guess is that Johnny Rockets is generating no more than a couple of million dollars for Sun Capital, perhaps not much more than breaking even. Sun bought it from RedZone Capital in 2013, who had bought it in 2007. After thirteen years in private equity hands, you can bet that the energy provided by early management is long gone. It is “just a name” to Sun Capital, to be bought and sold, and the $25M can be applied elsewhere. Private equity firms always have liquidity concerns as well, so that might come into play here. If Johnny Rockets is breaking even to earning perhaps $2M for Sun Capital, Fat Brands could probably “adjust” that to a current million or two, and believe they can leverage that over a couple of years to six or seven million of EBITDA. Even if it takes longer, and amounts to only $5M, it would be a worthwhile ROI for FAT. A lot more than their cost of capital. So…..the seller is tired…..and the buyer is optimistic….and liquid enough….and that’s how deals get done.

Let’s watch.

Roger Lipton