Tag Archives: OPES




We have written before about the pending merger of BurgerFi into OPES, as both entities take advantage of the markets appetite for blank check (SPAC) companies. The SPAC approach has been around for decades but it has emerged, in a zero interest rate world, as one of the most dynamic segments of the capital markets. Investors will have invested over $60 billion this year without knowing what company they will own. They are betting on the founders of the SPAC to find an attractive acquisition, which will be usually be bought using a lot of debt. This approach works for all stakeholders: (1) the sponsors (2) the underwriters (3) the target company to be acquired and (4) the SPAC investors. The sponsors, underwriters and the target company have a good chance to do well both short and long term. The investors in the SPAC are protected until just before the acquisition closes, have a decent chance of doing well in the short term, especially in the current environment, but are carrying a heavy “promotional” load in the long run. This is like buying a mutual fund with a small sales charge up front but most likely a 20%-40% promotional “load” before exiting the investment.

  • The sponsors buy a lot of very cheap stock as the SPAC is formed, typically for pennies/share, sometimes also getting further stock options. They may or may not “average up” by purchasing more stock as the SPAC goes public. In any event, their average purchase price is a small fraction of what the public pays.
  • The underwriters receive a hefty commission for raising the SPAC capital, and they get stock and/or options as well, so they are guaranteed compensation plus have a free long term stake.
  • The company acquired becomes publicly held, receives capital for growth, ownership may or may not get an initial payout but they continue to have a major stake. Especially these days, the purchase price is more than adequate because competition is intense for attractive targets. Going public by way of a SPAC is often a unique alternative for a company with “hair on it”, either very speculative or with a checkered history. A very strong company with great management can go directly to a high quality underwriter and has no to tolerate the promotional dilution involved in the SPAC approach.
  • The investors in the SPAC typically receive a “Unit” consisting of stock plus warrants. The stock can be redeemed at cost of the unit, before the proposed merger takes place, and the investor retains the warrant so has some upside at no cost. Currently, most SPACs are trading above the issue price. If the stock market turns down, the investor can redeem his cash, getting out “whole”, which happened in the first quarter of 2020, therefore protected in the short run. Longer term, the dilution of corporate ownership by the sponsor and underwriter is substantial, which in turns provides a very high valuation for investors to live with.


We stand by our previous analysis of the current BurgerFi fundamentals and the current balance sheet structure, which our readers can explore by way of SEARCH (for “OPES”) on our Home Page.

We have, by way of further scrutiny of the voluminous SEC filings and conversations with industry sources, discovered that the OPES Acquisition Corp. that merged last week with BurgerFi was a completely different group than formed the original OPES. The background of the original Founders does not seem currently important other than to say that they were heavily involved in a variety of Mexican companies, primarily in energy, consumer finance and infrastructure. It was that group that purchased 2,875,000 shares for $25,000 (less than $.01/sh), took OPES public by raising $116M with the sale of SPAC Units (a share of stock plus a warrant) for $10/sh in March, 2018 and embarked on a search for an acquisition vehicle.

After two years of searching for an attractive vehicle, with a previously granted time extension having only six months to run, the original group was “bought out” in March, 2020, by current Chairman, Ophir Sternberg and affiliates, including Lionheart Equities, LLC, a Miami based real estate firm he founded. (To avoid confusion, we point out that Lionheart Equities, a current shareholder, is apparently unaffiliated with Lion Point Capital, an original OPES shareholder, still owning 945,938 shares.) In terms of disposition of the original 2,875,000 founders’ common shares, it appears that 1,610,000 of those shares were transferred to Sternberg affiliate, Lionheart Equities, where they reside today.


There were seven potential targets described in the proxy filing, in a variety of industries. We assume that these were virtually all in the time period before Ophir Sternberg got involved, because the process moved very quickly from March to June, 2020, when the first OPES/BFI meeting took place to an agreement announced.

Prior to Sternberg’s involvement, the allowed time for consummation of a deal had been extended by stockholders from 9/16/18 to 11/15/19. By the earlier date $23.6M of IPO proceeds had been redeemed. On 11/15/19, after $2.4M of redemptions, the period was extended to 1/15/20.  On 1/15/20, after $191k of redemptions, an extension to 3/16/20 was granted. On 3/16/20, after the pandemic had generated $47M of redemptions, an extension went to  6/18/20. The original OPES founders were no doubt encouraged to move on, since the “bankroll” in escrow was now under $50M. Sternberg’s new group no doubt started their process thinking about smaller targets than originally considered.

On March 18, 2020, the first contact, as described in the proxy material, was when OPES chairman, Sternberg, contacted John Rosatti, CEO and Founder of BurgerFi, presenting the possibility of exploring a business combination. They had known each other personally but had not any previous business relationship.

June 8, 2020, after negotiations as described in the proxy material, non-binding Letter of Intent was jointly announced by OPES and BurgerFi.

On June 30, 2020, a joint announcement detailed the definitive agreement. Stockholders had already extended the allowed time to 9/16/20. It was extended again to 1/15/21, and it doesn’t matter anymore.


We like to keep articles concise, but while we’re at it, we found the risks as described in the proxy material interesting. Setting aside the “normal” risks associated with operating a multi-unit restaurant franchising companies, things like ”availability of locations”, “supply disruptions”, “labor costs”, “competition” , yada,yada,  we present below some of the most significant “structural” risks as presented within the 150 page OPES/BFI proxy material.

“BurgerFi will have controlling stockholders whose interest may differ from those its public shareholders.”

“The Post-Combination Company’s anti-takeover provisions could prevent or delay a change in control of the company, even if such change in control would be beneficial to its stockholders”.

“The Post-Combination company will incur relatively outsized costs as a result of becoming a public company.”

“As a ‘smaller reporting company’ we are permitted to provide less disclosure than large public companies which may make our common stock less attractive to investors.”

“The unaudited pro forma financial information included in this proxy may not be representative of the Company’s results following the Business Combination”

“If our due diligence investigation of BurgerFi was inadequate, then OPES stockholders could lose some or all of their investment.”

“If those OPES security holders who have registration rights exercise their right, it may have an adverse effect on the market price of OPES’s securities.”

“Provisions in our Certificate of Incorporation, Bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pain the future of our Common Stock and could entrench management.”

“If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.”

“A significant number of shares of our Common Stock are subject to issuance upon exercise of the outstanding Warrants, which upon such exercise may result in dilution to our security holders.”

“Sales of a substantial number of shares by our existing stockholders could cause our stock price to decline.”


It remains pertinent that Lion Point had originally been granted a Forward Purchase Contract to purchase 3,000,000 units (a share and a warrant) at $10.00 per unit once a business combination had taken place. On June 29, 2020 the original Lion Point agreed to purchase 2,000,000 units and the newly involved Lionheart Equities would purchase 1,000,000 units. The Sternberg affiliates will therefore have “averaged up” their 1,610,000 Founders’ shares by buying another 1M shares at $10.00/share with an option to purchase another million shares at $11.50. Together, Lion Point and Lionheart would provide $30,000,000 to the newly public BFI. As described further below, BFI agreed to register a total of 5,029,376 shares to be owned by Lion Point. This includes 862,500 of Founders’ shares, 4,00,000 shares from the newly purchased Units and 166,876 shares from previously purchased Units. Lion Point is entitled to make up to two demands for registration and those shares will have “priority registration rights” (as described on Page 9 and again on page 14 below).

Even more important are the larger number of registration rights, as detailed on page 14 of the proxy:

“ In connection with the Business Combination, all of the parties to the Original Registration Rights Agreement (and those parties who as a result of the transfer of Founders’ Shares became a party to the Original Registration Rights Agreement)……will enter into a new registration rights agreement covering the registration of 28,618,773 shares of Common Stock…..The Post-Combination Company will be obligated to file a registration statement with the SEC within thirty (30) days after the Closing of the Business Combination to register the shares for resale, which must be effective within 90 calendar days following the filing date, or in the event the registration statement receives a “full review” by the SEC, the 120th calendar date following the filing date. In the event the SEC requires a cutback in the number of shares being registered, the shares will be cut back on a pro rata basis, except that the 5,029,376 shares of Lion Point that are being registered will not be reduced. In addition, Lion Point is entitled to make up to two demands that we register the shares and all holders have “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of the Business Combination. The form of the New Registration Rights Agreement is attached as Exhibit C to the Acquisition Agreement.

“Lock-Ups: In connection with the Business Combination, the Members (previous BurgerFi shareholders) shall enter into a lock-up agreement with OPES pursuant to which the (i) Closing Payment Shares shall be subject to a lock-up until the earlier of (x) six months after the Closing Date of the Business Combination, and (y) if, subsequent to the Closing Date, the Post-Combination Company consummates a liquidation, merger, stock exchange or other similar transaction which results in all of the Post-Combination Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property, the date such transaction is consummated; and (ii) the Earnout Share Consideration shall be subject to a lock-up for a period of six months from the date the applicable Earnout Tranche is earned (provided that the Members shall be permitted to undertake block trades during each such lockup period).”


We have written before about the operating fundamentals at BurgerFi, as described so far in publicly filed documents. A very broad overview of newly public BFI includes a pro forma 9 month combined  $2.953 million loss, which included $551k from OPES (pre-merger) and $3.54M in D&A at BFI. BFI, on its own for the nine months, had an operating loss, but positive EBITDA in the area of $1M.  There are about 17.6M shares outstanding,  valued at today’s price of about $15.00/sh at $264M. Subtracting the $43M of cash on the balance sheet, the business, net of cash, is valued at about $221M.

It is not surprising that smart, successful, financially well connected entrepreneurs view SPACs as an opportunity to make a major score. Underwriters are willing to tell your story, investors are willing,  the music is playing, so why not dance? The reward/risk equation is very seductive for SPAC founders. That’s why Founders of SPACs include multi-billionaires by the names of Branson and Foley and Sternlicht. I guess you can never be too rich, though I’ve been told “you can’t take it with you”.

As the OPES/BurgerFi transactional process illustrates, however, there are risks for all involved. Enthusiasm in the capital markets can be fickle, in which case the sponsors may not get the liquidity they hope for, the acquired companies may not be equipped to deal with the short term performance pressures of public ownership, and investors in the SPAC may overstay their welcome. In the specific case of BFI, there are currently 17.6M shares outstanding, of which about 6M are in the public float. As described above, however, holders of 27M shares have registration rights. The actual operating results will therefore need to reinforce the story, or there will likely not be adequate demand for over $250M worth of new common shares.

Roger Lipton



OPES announced this morning that the virtual shareholder meeting to approve this deal will take place on December 15th. Final proxy material will be filed with the SEC  on December 2nd.

We have recently written two articles discussing the potential acquisition of BurgerFi by SPAC, Opes Acquisition Corp. (OPES). Our most recent article can be accessed here:


Our previous information was gleaned from the Investor Presentation as well as the preliminary proxy material. One of our readers was kind enough to forward to us the Franchise Disclosure Document, which provides some additional information.

We had estimated that the royalty structure  includes 5.4% of “Sales Based Royalty”, a Brand Development Fee of 1.4%, and the Company was receiving Vendor Rebates of 0.45% (which was increasing the cost of goods to franchisees). That total was therefore about 7.25% to be deducted from company store level EBITDA from franchised locations. We didn’t deal with advertising requirements (below the store level expense line) because the Investor Presentation didn’t discuss it. The FDD pinpointed a Royalty Fee of 5.5%, a Brand Develpment Fee of 1.5%, plus a Local Advertising requirement of 2%, and POS System Maintenance and Support of $6,000 Annually or about 0.4%. There are lots of other charges to franchisees such as “On-Site Training” of $450 per trainer per day, 1.5% interest per month on overdue royalties, On-Line Ordering of $129/month per store, Gift Cards/Loyalty Program of $1500 annually. Setting aside the “nickel and dime” charges: The Royalties (5.5%), Brand Development (1.5%), Vendor Rebate (0.45% cost to franchisees), Local Advertising (2%) and POS Support (0.4%) add up to 9.65% (below the company store level EBITDA line).  That reduces the franchised store level EBITDA line from our previous 6.9% of sales to about 4.25% of sales (before depreciation and local G&A). The new store level cash return of  $57k (based on the $1.345M franchise AUV) is lowered from 12.3% of the $750k buildout to only a 7.6% cash on cash return at the store level. Even if the franchise store does the 2019 company store average of $1.87M, the cash return would only be $79k or a 10.5% cash on cash return. 

The FDD provided a chart (below) apparently showing how the oldest stores in the system  are doing the best, as of the Y/E 12/31/19.

This chart seems to show that stores are maturing consistently with higher volumes as they age. However, here’s a bit of further illumination, as provided within the FDD. The table below will summarize the next five paragraphs.

There were 43 franchised and affiliate (company) owned restaurants open for at least 60 months, of which 9 were affiliate owned. The annual average of those 43 restaurants was $1.591M, including the affiliate average of $1.756M, so we calculate that the non-affiliate  (franchised) average was $1.548M.

There were 58 franchise and affiliate (company) owned restaurants open for at least 48 months, of which 11 were affiliate owned. The annual average of those 58 restaurants was $1.499M, including the affiliate average of $1.785M, so we calculate that the non-affiliate (franchised) average was $1.432M.

There were 70 franchise and affiliate (company) owned restaurants open for at least 36 months, of which 14 were affiliate-owned. The annual average of those 70 restaurants was $1.478M, including the affiliate average of $1.775M, so we calculate that the non-affiliate   (franchised) average was $1.403M.

There were 82 franchise and affiliate (company) owned restaurants open for at least 24 months of which 14 were affiliate owned. The annual average of those 82 restaurants was $1.447M, including the affiliate  average of $1.775M, so we calculate that the non-affiliate (franchised) average was $1.379.

There were 92 franchise and affiliate (company) owned restaurants open for at least 12 months of which 15 were affiliate owned. The annual average of those 92 restaurants was $1.413M, including the affiliate average of $1.716M, so we calculate that the non-affiliate (franchised) average was $1.354.

So here’s another way to look at the first chart, which seemed to show pretty good progress:

You can see from this tabulation  that the first chart is very heavily influenced by the oldest company stores, which have done consistent volumes north of $1.7M. It’s interesting to note that the newest company stores are doing a little worse than the five year old locations, the oldest stores very little changed for “time in grade”. Relative to the franchised locations, the volumes between the one year old and the four year old stores are very little different, only about 5% “progress”  in total from the one year old class to the four year old class. Only the franchised class opened six years ago(now open for a full five years) is doing materially better than the stores opened most recently. In short: the franchised locations opened over the last five years are consistently doing about $1.35M, far below the company average, so store level margins for franchisees, burdened by royalties, etc., will be hard pressed to generate an attractive return on investment, even if they achieve the higher company volumes.


Once again we say that the BurgerFi franchise stores scheduled to open need to do materially better than franchised stores opened over the last four years. Store level margins for franchisees are  too modest unless sales volumes turn out to be materially higher than even the existing company locations. Since the historical operations don’t support what we consider aggressive projections in the Investor Presentation, we view the post-merger valuation as unattractive. SPACs are hot investment vehicles at the moment, so OPES/Burger Fi  stock might do well for a while. That will not necessarily be related to the fundamentals of the situation, which will assert themselves at some point, for better or worse.

From the standpoint of potential franchisees (of any concept) that this website serves, we suggest you read every page of the FDD, as well as talk to existing franchisees, going so far as to examine their operating results (including royalties and other fees) if possible. We can’t help but note how one-sided franchising “agreements” are, predictably in favor of the franchisor. Hardly any potential franchisee, enamored as they are during the “courtship”, will hire a qualified attorney to negotiate the franchise contract, but it would be money well spent. At the least, the negotiation, if there is any, will give the prospect time to think through the next twenty years of a new “partnership”.

Roger Lipton








We have written recently about Special Purpose Acquisition Companys (SPACs) in general, and the potential purchase of BurgerFi by Opes Acquisition Corp. (OPES). When we first commented about SPACs a short four months ago, the running total of these blank check companies to have gone public in 2020 was a token $20 billion. Weeks later it was $60B and now it is pushing $100 BILLION. You can call this a sign of the times. Investors are providing $100B to what we used to call a blind pool. This is another symptom of TINA (there is no alternative) as investors reach for a return, no matter how little they know about what they are investing in.

Relative to OPES and BurgerFi: The sponsors of OPES raised over $100M in March of 2018, almost three years ago. After a number of extensions, they announced in May 2020 that they were targeting BurgerFi, a currently 116 unit system of mostly (over 100) franchised fast casual burger restaurants based in Florida. Readers can review our past discussions (see SEARCH on our Home Page) but suffice to say that this chain that has been modestly profitable, which is acceptable for a private company in the early years of building a franchise system. The fact that their stores are heavily concentrated in Florida, which allows for operational efficiency, and that the dozen company operated stores average AUV was $1.869M annually (vs. $1.345M for franchised locations) has allowed for this profitability. On the SPAC structural side, it is very important to know that, as we discussed previously, over half of the $116M that was in trust as of 12/31/19 had been redeemed in the course of this year’s first quarter that featured the Covid-19 pandemic. We suspect that larger situations were originally targeted but after more than half the original bankroll was redeemed in early 2020, OPES sponsors decided that BurgerFi was their best opportunity.

One of the stated attractions of using SPACs to go public is that the time frame is shorter than with a traditional IPO. We suggest that the SEC, while careful in reviewing accounting treatment, is not passing judgement on the long term investment appeal of the enterprise. The underwriter for the SPAC has knowledge of the sponsors, but the SPAC investors are not protected by the presumably more informed business judgement of a traditional IPO underwriter. We view our role here to do a bit of that.

On November 13th, the shareholders voted to extend the date (for the sixth time) of consummation from 11/15/20 to 1/31/21. Preliminary proxy material has been filed and, once cleared by the SEC, the shareholder meeting to approve the deal will be scheduled before 1/31/21.


We refer our readers to our previous articles on BurgerFi, which can be found with the SEARCH function on our Home Page.

First, our decades of experience working with a traditional IPO underwriter taught us that almost no deal would be brought with reported results that were last audited almost a year earlier. Such is the case with the BurgerFi. It’s possible that the final proxy filing will provide more recently audited results and commentary but that would be a little late for much scrutiny.

That said, according to the most recent proxy material:

Unit level economics for an operating BurgerFi  is of utmost importance. The 2200-2400 square foot unit costs about  $750k to build and equip (described earlier in the year as $650-750k). As shown in the table below, the AUV for company stores in 2019 was $1.869M, up a little from 2018, flat over five years. Presumably describing company units : “The typical per unit contribution at this sales level  is about $250,000 annually or about 13.9%.” Things get a little confusing, however,  because store level EBITDA at company stores in 2019 (from Exhibit F-4 of the proxy) would calculate to only 9.5% (26.5% CGS, 32.9% Labor, 22.1% Other Expenses, 9.0% Occupancy Related Expenses). However, Note 1 of the financials says that the BF Commissary, which commenced operations in 2019, produces and sells BurgerFi’s vegetable burgers to a distributer based on agreed-upon cost plus freight cost. For the year ended December 31, 2019, the Company recognized revenue of $709,876 from BF Commissary, presented as part of restaurant sales in the consolidated statements of income. If the cost of Commissary Sales is in the area of  $709k and that is deducted from the “Other Restaurant Expenses”, it would bring the apparent 9.5% store level EBITDA close  enough to management’s 13.9% suggestion, which suffices for the following analysis.  We should emphasize however that the 13.9% is against an AUV of $1.869M  which the franchisees will be hard pressed to match, considering that their average AUV was $1.345M in calendar 2019.

Table I


No standard percentage royalty is stated. Royalties earned are described as a “sales based royalty”, which we assume to be a sliding scale dependent on volume.  We can deduce the average royalty percentage, however, because we calculate that about 95 franchise stores were operating in 2019 on average, with an AUV of $1.345M, so franchise system sales were about $128M. The actual royalties earned, shown in Table II below, divided by franchise system sales, indicate a “Sales Based Royalty” of 5.4%, “Brand Development Fee” of 1.4%,  and “Vendor Rebates”  to the parent of .45%.

Franchise operated locations, assuming the 13.9% company operated EBITDA margin (at higher volumes), would therefore be reduced by about 7 points to 6.9%. That percentage of 2019 franchise AUV ($1.345M) is a cash return of $93k or 12.3% of the $750k buildout (excluding pre-opening expense). That is obviously not an especially attractive return, since it is before depreciation (a real cost over time, running about 2-3 points for the Company) and local G&A expenses (at least another 2-3 points).  That would practically eliminate the 6,9% of sales store level EBITDA for the franchisee.

We have provided, at the bottom of Table I above the high volume franchise locations that the proxy material featured. Experienced chain restaurant observers know, however, that some stores do better than others and it’s the averages that matter. Our conclusion from the above discussion is that the franchised locations to come must match or exceed the Company AUVs, or there will not be very many happy franchisees. A 6.9% Royalty  Adjusted EBITDA return,  even on the $1.859 company AUV is $128k, still a less than exciting 17% cash on cash return.


Opes and BurgerFi present some impressive projections for 2021 and beyond. As we described in our previous reports, at the beginning of 2020, $3.3M of Adjusted EBITDA in 2019 was estimated to grow to $4.3M in ’20 and $10.5M in’21. We accept the fact that 2020 is a lost year, for the restaurant industry as a whole. However, one should not be too impressed by the million dollar gain in Operating Income in 2019 vs.2018.  The largest part of this “Operating” gain (as shown in Table III above) was the fact that Brand Development Expenses for the year ended December 31, 2019 exceeded revenues received by $13,000, as compared to the year ended December 31, 2018 of $802,000. This represented a decrease (in expenses) of $789,000. This decrease is due to the Company spending much less on production and media advertising during the year ended December 31, 2019 versus the year ended December 31, 2018. (as described on Page 104 of recent proxy material).

While Operating Income was positive again in 2019, the increase (Adjusted with the above item) from 2018 comparison to calendar 2018 was $391k, not $1,180k.


Management has been beefed up, with the hiring of CEO, Julio Rasmirez, with a broad base of international franchisee prospects. His credentials include:

Sales have steadily improved from May through September. As the proxy described: “Beginning in May and through the end of June 2020, same store sales declines partially recovered to negative 20%. In the third quarter of 2020, same stores sales declines were in the negative single digits. We did not experience any supply chain difficulties as a result of COVID-19 during the first three quarters of 2020; however, there can be no assurances that we will not experience supply chain challenges in the future. We experienced negative cash flow during the months of April and May 2020 and have since turned cash positive in June through September.”

The table below shows how off-premise activity contributed to the improvement through the end of June.


It is natural that a company choosing to withstand the substantial dilution by way of a SPAC IPO process will have a little “hair” on it. As we have previously described, the promotional percentages to the upfront sponsors and underwriters can amount to as much as 30% of the target company’s pre-deal value. In addition to the points we have raised above, there are no doubt lots of additional questions that can be raised by a 150 page proxy document, especially when results since December, 2019 have not been audited. This last aspect may yet be satisfied by the final pre-deal proxy, but shareholders will have little or no time for study before voting.

Accounting issues and historical details aside, our primary concern is that the unit level economics, as documented from historical results, are not compelling. The post-merger valuation of $140M or so will be something like 14x EBITDA projections for 2021 that were made almost a year ago.  The franchise locations need AUVs and margins materially higher than has historically been the case. As we have pointed out in our previous articles, if the Company should happen to make their projections, a great deal more dilution kicks in with earnout shares, so the working multiple is well over 20x what we feel are questionable projections for 2021. Aside from the normal uncertainties relative to the timing and the success of new openings, we expect there to be a large number of unexpected legal and accounting expenses in the course of managing a new publicly held entity. This will be on top of the operational needs of a rapidly growing chain.

We therefore think it is only a remote possibility that 2021 will generate returns anywhere close to projections. We are sure the economic impact of the planned expansion with Reef Kitchens, as well as the franchise structure at military bases would have been described in  detail if there were any reasonable basis to do so. We also doubt that the international franchising community will be clamoring anytime soon for BurgerFi franchised territory, no matter how well connected the new CEO.

We wonder: should this deal get done? Will this deal get done? We think Warren Buffet’s famous advice, “You don’t have to swing at every pitch” applies.

Roger Lipton






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