Tag Archives: HUGS



Happy New Year!

Our objective is to provide some food for thought (no pun intended). We try to write about topics and provide editorial commentary that you won’t find elsewhere. Looking back over our more than 100 topical articles in the last twelve months, we enjoyed studying and discussing quite a few of the most newsworthy developments. Use the SEARCH function on our Home Page if you would like to review our (unfiltered) commentary regarding:

THEMES such as :

SPACs, the appeal (as suggested by the “players”), and the dangers (hardly ever discussed) of this type of financing.

The economics of third party delivery.

Individual analytical reports on the newest public restaurant companies, namely BurgerFi, Krispy Kreme, Dutch Bros., Sweetgreen, Portillo’s First Watch and Fogo de Chao (pending).

Tilman Fertitta’s attempt to come public through the FAST Acquisition (FST) SPAC


Inflation, past, current and future.


We don’t get paid for this, except in our own account, but our readers seem to value our opinion so we sometimes provide it. We hope to help our readers avoid predictable mistakes. We continue to be negatively inclined toward the SPAC space and BItcoin. Among the newly public restaurant companies, we might have helped you sidestep BurgerFi (BFI) as well as the Krispy Kreme (DNUT) and First Watch (FWRG) IPOs. Sweetgreen (SG) and Portillo’s (PTLO) were (and are) too rich for our blood, though we are admirers of Dutch Bros (BROS), closer to the IPO price than here in the 50s. As an update, and in full disclosure, we personally took a small position recently in Krispy Kreme, far more interesting in the mid-teens (with JAB buying it back) than it was at the $17 IPO (reduced from the originally contemplated $21-23).

Fundamentals, in a world of FOMO (Fear of Missing Out) and TINA (There is no Alternative), still matter. In terms of documenting that the equity market has not altogether given up on common sense,  we look back at our published analysis of the restaurant stock universe on 11/11/20, after the pandemic psychology had killed the stocks. We’ve provided the link just below to that report, where we pinpointed Papa John’s as an especially undervalued stock, considering the stock and the fundamentals at the bottom of the pandemic. Papa John’s (PZZA) was $77/share on 11/12/19 and today it is at $133 (up 73%). Every situation did not play out as expected, but we also pinpointed Wingstop (WING) at $129 and today it is at $172 (up 33%). The two stocks we suggested as most overvalued at that point (BJ’s and Shake Shack) have gone down, 15% and 10%, respectively, during the same time frame. “Paired trades” are difficult, especially over the short term, so it is gratifying that all four favorite positions (long and short) were profitable.



We are looking at a far different calendar ’22 than we anticipated a year ago, even six months ago. We expected ’21 to be the transition year, with a return to normalcy in calendar ’22, but now “not quite”. The staffing challenge in restaurants is worse than ever, even with a higher wage scale, and the timing of relief continues to be uncertain. Normal volatility in cost of goods has been exacerbated with supply chain distortions, with some products (just as with labor) sometimes unavailable at any cost. However, while a great deal of uncertainty still exists, there is far more clarity than 12-21 months ago. The country is more open for business, vaccines and treatments are now available and generally effective in avoiding the worst possible health consequences. Restaurant operators have learned to manage labor more efficiently, have simplified menus, and have enhanced their off-premise revenue base (with to-go, delivery, curbside pickup and/or ghost brands). While operational challenges accompany the new potential, because labor must be allocated among these new business segments and managed to avoid hampering the dine-in activities, in the best of circumstances operational margins could exceed pre-pandemic levels.

The stocks

Publicly held equities have cooled off from the inflated values of early 2021, a number of well established companies trading in the lower half of their historical valuation ranges. Among the restaurant IPOs of 2021, Krispy Kreme (DNUT)($18.58), after declining from the $17 IPO price to under $13, has recovered,  not in small part due to parent, JAB, buying back millions of shares of stock. Sweetgreen (SG)($31.48) is just above its $28 IPO price, after peaking the first day above $50. First Watch (FWRG)($17.43) came public at $18, traded just briefly to about $22, then bottomed below $16. Portillo’s (PTLO)($40.27) spiked to over $50, collapsed to the low 30s before recovering to the current level. Dutch Bros (BROS)($53.24) ran from its IPO price of $23 to about $75, fell back into the 40s before stabilizing here. The cooling process is also in evidence by the fact that there is no restaurant related SPAC that is trading at a material premium to its IPO price. Especially symbolic is the lack of premium for Danny Meyer’s USHG Acquisition Corp. (HUGS)($10.36), which has announced they will become a “cornerstone partner” with JAB controlled Panera. The uncertainty here is apparently the not yet disclosed relationship between HUGS’ capital and Panera’s valuation but the “smart money” is obviously not willing to bet that HUGS common stock will be compelling after the fact.

Our analysis going forward

For our investment purposes and yours we have updated our website. The “Corporate Descriptions” section now provides, at a glance, for every publicly held restaurant company, the most important parameters relative to current valuation.  For example:


From that starting point, our investment process consists of evaluating the current operating fundamentals, whether or not the “on the ground” developments will materially change the financial picture. As part of that summary, we provide a link to the most recent conference call transcript. We are in essence looking for operational inflection points that are not yet reflected in the stock market valuation.

These Corporate Descriptions will be kept current on a quarterly basis.

Further “bookkeeping” improvements

This website will also keep all of us posted, on a weekly basis, which companies are about to report earnings. In conjunction with this weekly update, we will also publish changes in analyst ratings, and a link to the most recent  publicly disclosed “data point”,  the relevant conference call transcript.

In Summary

We thank all of you for your past support and are looking forward to sharing with you a great 2022!

Roger Lipton



The excitement in the marketplace relative to SPACs (Special Purpose Acquisition Corporations), as evidenced by the chart shown just below, has clearly abated (as we have repeatedly suggested over the last six months).


Readers can find more extensive discussions about the individual situations discussed below by using the SEARCH function on our Home Page.


Of the restaurant related SPACs:

The only completed deal, BurgerFi (BFI), is trading almost 50% down from its high and below the $10 IPO price of the original SPAC.

Fast Acquisition Corp II (FZT), (USHG), Tastemaker (TMKR) and Bite (BITE), are sitting on a total of almost one billion dollars (which can be leveraged), are looking for deals at an acceptable price, and one that will excite the shareholder base that has to approve the transaction. However, with the stock price below the $10 IPO level, the opportunity must be compelling, or the shareholders will choose to redeem their ($10/share) funding.

Do It Again (DOITU) and Sizzle (SZZLU) have yet to be funded.

Only Fast Acquisition Corp (FST) is trading above the IPO price, about 20% higher, with the Fertitta deal pending. Even here a great deal can happen in the marketplace by the time the SEC approves the proxy material and the shareholders vote.

Bottom Line: SPACs have been very productive for some, but, as usual, the “early adopters” will have been most fortunate. Later participants are finding that the process is riskier (because Sponsors have to fund the SPACs organizational expenses), the IPO process takes longer, the search process is tedious (especially when competing with many other bidders), and the business combination may or may not be approved by shareholders. Even then, long term success is not assured and the liquidity process for Sponsors is not always easy. Some Sponsors and SPAC investors will do just fine, and they likely will have earned it.

Roger Lipton






Danny Meyer and Co. raised $250M yesterday. Now the hunt begins to find a high quality company that can be bought without overpaying by too much. The time allowed to complete the transaction is twenty four months, though that could be extended by way of a shareholder vote.

Something like $100 billion has been raised by way of SPACs (Special Purpose Acquisition Companies) in the last twelve months, which can be leveraged four or five times. If half of that is still in the hunt, that would mean that $250 Billion is looking for a home. Foreshadowing our conclusion:  it will be hard to find a bargain.


Each Unit of USHG AcquisitIon Corp. (HUGS/U), sold to the public at $10.00, consists of a share of Class A common stock plus one third of a five year warrant to purchase a share of class A common at $11.50. The $11.50/sh warrants are exercisable on the later of 30 days after the business combination or 12 months from the IPO. The Sponsor of HUGS  is an affiliate of Union Square Hospitality Group, LLC, (USHG, the same letters, different order).

We need not detail the credentials of Chairman of the Board, Danny Meyer, literally a legend within the hospitality industry.

In addition to Randy Garutti, well known to investors as CEO of Shake Shack, Directors probably less well known to restaurant industry investors, are: CEO, Adam Sokoloff; CFO, Tiffany Daniele; J. Kristofer Galashan;  Lisa Tatum; Mark Leavitt; Walter Robb; Heidi Messer; and Robert Steele.

Daniele, Galashan, Tatum, Leavitt and Robb have long been affiliated with USHG. Sokoloff and Steel are highly qualified in terms of their background within investment banking and private equity circles. Messer has been a prominent, successful  entrepreneur and investor in the digital economy since the commercialization of the internet.

There is also an Advisory Council, consisting of Clarence Otis, Jr., Avisheh Avini, Patti Simpson, Kelly MacPherson, Richard Coraine, Darryl “Chip” Wade, Jonathan Sokoloff and Peter Mavrovitis, all of whom are affiliated with USHG.

Meyer has clearly done his best to include many of his key associates  from Union Square Hospitality Group, no doubt in his desire  to bring his associates along for  “the ride”.

The stated acquisition strategy, in the same mold as USHG and publicly held Shake Shack,  is “to identify and acquire a company with a people-first culture”. HUGS is not, however, limiting their search to the restaurant industry.


There were 6,934,500 Class B shares outstanding before the offering ,bought by the Sponsor for $24,120 (That’s twenty four thousand, one hundred twenty dollars.).  The Sponsor contributed 115,0000 shares  to Share Our Strength, a nonprofit working to end childhood hunger. Following the planned Business Combination, an additional  253,000 shares of class B common may be issued to advisors, presumably largely from the group mentioned above. The Founders’ B shares will elect Board members prior to the Business Combination, then be converted to A shares.

The Sponsor agreed to lend up to $300,000 to HUGS, to cover organizational expenses, to be repaid from the proceeds of the offering. The sponsor has agreed to purchase 1,333,333 warrants similar to those publicly held, for $2M, or $1.50/wt.

The Founder’s shares can be sold at the earliest of (A) one year after the Business Combination and (B) subsequent to the business combination, if the closing price of the public shares is at or above $12.00/sh for 20 trading days commencing 150 days after the business combination.


The Sponsor is risking about $24,000 to buy the Founder’s shares, plus loaning $300,000 for organizational expenses if the SPAC doesn’t become publicly held. Worst case, the Sponsor loses $324,000. When the deal comes public, another $2M is spent to purchase $1.33M warrants, so the Founder is then out of pocket by $2,024,000.

The public shareholders of HUGS have the right to redeem, for approximately $10/share,  prior to the Business Combination if they disapprove of the outlook from that point forward. This is typical of SPAC offerings and a major source of comfort to the SPAC buyers, along with the warrants (costing nothing) they can keep if they  bought the Units at the IPO. If time runs out to find  a Business Combination or if the majority of all the shares (37.5% of those publicly held) disapprove of the deal, the SPAC would be liquidated and the full $2,024,000 provided by the Sponsor would be lost.

The Founder’s shares, not liquid for a while, at the $10/share offering price of the unit before the public has won or lost anything,  are worth $69 million, almost 35 times the total invested.

However, it may not be easy to sell a lot of shares very soon.  There are lots of reasons that HUGS might not do so well for a couple of years after the Business Combination.  The Sponsor can sleep pretty well, though, because there is a big cushion. It only requires about  $0.30/share for the Founders to get back their $2.024M. On the upside, if the HUGS common should trade north of $12, to perhaps $15/sh., six months after the Business Combination, for whatever combination of reasons (strong market, exciting story, etc.etc.) the value of the liquid shares at that point, would be worth over $100M.

So….if management has any reasonable success, the return to the sponsors would be very large. If the stock only trades at $5 (so the IPO purchasers have lost half their investment) the Sponsors own over $30M worth of stock, fifteen times their money. At $15/share, the public makes a 50% return (plus the value of their warrants) and the Sponsor makes over  fifty times its investment..

And that’s why smart  entrepreneurs who can find an underwriter, are sponsoring SPACs. That’s also why there is going to be very active M&A activity, a great deal of it at inflated prices.


HUGS is going to find a very attractive opportunity, an open ended growth situation,  including a great “culture”. HUGS’ management will follow Warren Buffet’s approach in terms of paying a full price for a high quality property.  Meyer and Co. will have  outbid other purchasers in this overfunded environment, but the investment community will give HUGS’ management every benefit of the doubt. Investors will have a reasonable  chance to make an acceptable return over the long term and the Sponsor will make a fortune.

Roger Lipton