Tag Archives: SPACs



Introduction: This proposed transaction was announced on July 12th. We’ve followed the professional careers within the FAST II Sponsorship group for many years, were initially intrigued with their creativity in terms of improving the typical SPAC structure, and informed our readers accordingly on 7/28. After studying the Investor Presentations, this situation is well worth more study.  A preliminary S-4 has not yet been filed, but between the Investor Presentation and publicly available information regarding Falcon’s Beyond,  the Company is introduced here in fifty-nine seconds

( https://vimeo.com/570417222 ) (point & click, point & click on link)

and we provide the report below.


Relative to the improved SPAC structure, our 7/28 article concluded:It’s possible that the FZT/Falcon’s Beyond deal would take place with or without the adjustments. In our mind, however, the new structure provides a much more balanced approach between “organizers”, operating principals and the public investors and is no doubt a function of &vest’s navigation of the SPAC market over the past few years. There is less of a “promote” for the organizers and underwriters, potential stock sales by the operating principals are longer term than normal, more dependent on building the business as well as the stock price, all improving the reward/risk profile for public investors.”  See our 7/28 article for “Transaction Overview” and “SPAC Shareholder Incentives”.


FAST Acquisition Corp. II (FZT) raised $222M to utilize in acquiring a company in the hospitality industry.  The Sponsorship group and proposed Board of Directors have outstanding brand building credentials in the hospitality/restaurant/retail industries. Included are &vest’s Doug Jacob (co-founder of &vest), Bill Hinman (partner of &vest and former Director of the SEC’s Division of Corporate Finance), Sandy Beall (partner of &vest, founder of Ruby Tuesday’s, founder of Blackberry Farm and Blackberry Mountain) and others.

FAST II is proposing the acquisition of well-established Falcon’s Beyond, an Orlando, FL based fully integrated, experiential entertainment enterprise with a collection of both Brick & Mortar and Intellectual Property assets. The principals at Falcon’s Beyond have unquestionable creative and operating credentials. The Executive Chairman of Falcon’s Beyond is Scott Demerau, founder in 2007 of the House of Katmandu in Mallorca, Spain, which became a model for successful theme parks worldwide. In 2012 he established a 50/50 Joint Venture with Melia’ Hotels, which operates more than 380 resort properties across over 40 countries. The CEO of Falcon’s Beyond is Cecil D. Magpuri, who founded in 2000 predecessor Falcon’s Treehouse, which has designed, planned and helped to execute over $100 billion worth of hospitality/entertainment venues worldwide. In addition to Falcon’s Creative Group that designs the projects, and Falcon’s Beyond Destinations that implements the plans and owns the hotels, theme parks and retail destinations, there is Falcon’s Brands that will deploy proprietary and partnered brands across entertainment and consumer product categories. Among the Board Members of Falcon’s Beyond is Simon Philips, previously General Manager of The Walt Disney Company EMEA and President of Marvel Entertainment.

The broad objective of the newly public Falcon’s Beyond will be to produce operating cash flow, at the same time building for themselves brick and mortar, as well as intellectual property, just as they have created, planned and built for others over the last twenty-two years.



We will describe the deal terms and valuation in greater detail below but the post-deal valuation, at $10.00/share, will be about $1B, about 6.7x the projected $150M EBITDA run rate by mid 2025.  Importantly, the principals of Falcon Beyond are merging their entire professional careers into this venture and will own about 80% of the equity, as well as providing $60M to the Melia’ joint venture. Public SPAC shareholders (assuming modest redemption) will own about 10.7%. Private Placement investors will own 5.8% and Sponsors about 3.0%.

Critically, there will be no operating “burn rate” at the outset, since the Falcon’s Creative Group is already a going concern, with tangible visibility to provide $755M of goods and services over 4-5 years. The cash flow generation from Creative should help to fund the capital needs of Destination’s brick and mortar effort, with the first Melia’ JV project (Punta Cana) opening by early 2023 and two more to follow between early ’24 and mid ’25. Longer term, the potential from building Brands’ proprietary Intellectual Property could be a substantial third leg of Falcon’s unique position in hospitality/entertainment and represents significant upside to investors.


The July 12th Investor Presentation, with the associated conference call, provided some context as to how the key principals came to form today’s Falcon’s Beyond. Executive Chairman, Scott Demerau, has spent decades building and operating themed entertainment facilities, both in the US and abroad.  In 2007 he founded the House of Katmandu, a relatively small theme park adjacent to one of 380 Melia’ Hotel properties, in Mallorca, Spain. Katmandu’s success, accompanied by a dramatic improvement in room rates and occupancy at the hotel, encouraged Melia’ and Demerau to expand the Mallorca site into a 50-50 jointly owned Katmandu Park & Resort venture. In the course of Demerau’s activities, at Katmandu and elsewhere, he used the creative services of Cecil Magpuri, CEO of then Falcon’s Treehouse, formed in 2000. Prior to Falcon’s, Cecil had been Creative Director at Universal Studios and directed several projects like Apollo13, The Ride, Twister: Ride it Out!. In 2021, Demerau and Magpuri merged their companies to create Falcon’s Beyond.

Another 2:26 minutes, broadly describing Falcon’s Beyond:

https://vimeo.com/641310306   (point & click, point & click on link)


Short to intermediate term, Creative and Destinations will be fifty-fifty contributors to the results. Longer term Brands, its economics not included in the deal discussion, is expected to be an equal third leg and therefore represents further upside for investors.

Falcon’s Creative Group, led by CEO, Cecil Magpuri, in addition to supporting three internal projects, is currently executing the master planning for five third party theme park operators. These five parks will include the design of over 100 attractions, the media production for over 19 attractions, as well as procurement of necessary hardware. This backlog (including $100M for the Destination/Melia’ JV) will amount to about $755M of billing over 4-5 years, and, based on indicated margins, should generate EBITDA of about $158M. These projects include a very large Creative project involving engagement by Saudi Arabia’s Qiddia Investment Company to lead the design of 26 assets within a new entertainment district called Qiddia. Creative began work on Qiddia in 2018 on this very long-term project that will encompass 367 square kilometers (19×19 km.,11×11 mi.). The expected operating profit within Creative should generate cash flow for investment in the brick & mortar at Falcon’s Beyond Destinations as well as buy time for Falcon’s Beyond Brands to monetize their asset light efforts.

Below: videos – 3 of $100B worth of projects – (point & click, point & click on link)

BaNa Hills Mountain Resort in Da Nang, Vietnam on Vimeo

Making-of Becoming Jane: The Evolution of Dr. Jane Goodall at National Geographic Museum on Vimeo

https://vimeo.com/279458337   Atlantis Sanya – China’s premier Underwater World

Falcon’s Beyond Destinations will be capitalizing on the potential of the joint venture with Melia’ Hotels International, owner and operator of about 380 resort hotels worldwide. In most anticipated locations Melia’ plans to contribute an existing hotel to each project within the 50-50 joint venture and Destination provides the capital for the Katmandu Park (owned 50-50) as well as the 100% Destination owned Falcon’s Central entertainment and food center. The first major JV project will be in Punta Cana, Dominican Republic, to open by early 2023. It was recently announced by Melia’ that the new park will open in December, and the hotel in the JV is already the number one hotel in Punta Cana.  The second joint location will be at Tenerife, in the Canary Islands, to open in early to mid-2024. The third spot is at Playa del Carmen, in Mexico, the park to be open in early-mid-2024 and the hotel in mid-2025.

The Investor Presentation estimates that by mid-2025, Destination’s 50% of the joint venture plus 100% of Falcon’s Central, depending on the cap rate, will be worth from $954M to $1.451B.

Falcon’s Beyond Brands is focusing on expansion, execution and monetization of proprietary as well as partnered brands. Brands, consumer products and entertainment content can all be licensed, just as proprietary existing brands such as Katmandu, Cadim, the Monster Wave and VQuarium. In conjunction with Creative and Destination, as well as 3rd party partnerships with BRON Studios, Moonbug Entertainment, PBS Kids, Epic Story Media and others, this is an asset light effort that could be very substantial over time. Management estimates that Creative and Destinations will contribute 50% each to EBITDA for the next two years, but each division could contribute about 33% longer term.


We have more to learn, from the S-4 when filed and our further research, but it seems at this point that success is more a question of how much and when, rather than if. The professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. A billion dollars is a significant starting valuation, but the ROI on over $200M of SPAC proceeds, invested productively in brick & mortar projects, and the earnings power at the Creative division should support a good portion of that. Moreover, the value of Falcon’s 50% portion of just the first few projects with Melia’ Hotels could approximate the initial $1B valuation.  Longer term, more Destination projects with Melia’ and others, expanded Creative business with Qiddiya (described below) and others, and Brands could combine to double the projected mid-2025 $150M run rate of EBITDA by ’27-’28. It is a crucial consideration that current Creative operations are cash flow positive, available for the development of brick & mortar assets. This feature, along with the banking relationships of Melia’, should allow for growth as planned, even without a broad vote of confidence from current FZT shareholders. The possibility of $150M annualized EBITDA in only about 2.5 years, the potential to build billions of capitalized value attached to new brick and mortar assets, with Intellectual Property development a material “kicker”, makes the current $1B starting point appear reasonable. Precise timing of events is always uncertain, and the degree of success cannot be assured, but the intellectual, physical and financial assets seem to be in place. While, per Yogi Berra, “Predictions are always difficult, especially about the future.”, uniquely positioned Falcon’s Beyond provides an unusually attractive investment proposition


Falcon’s and its predecessor Creative companies have executed story-driven development projects related to over $100B of projects in 27 countries and currently have $755M of revenue visibility. They are uniquely equipped to respond to the secular shift to “experiential” consumer leisure pursuits.

A 50/50 Destination driven joint venture with Melia’ Hotels, operator of 380 resort venues around the world, can provide value to Falcon’s common stock by way of $150M of annual EBITDA and $1B of asset value in about 2.5 years.

Last, but far from least, Falcon’s Intellectual Property and Brand Development is expected to be an equal third leg to Falcon’s long term value building process.  Falcon’s Creative Group designs the projects, Destination develops the hard assets, and Brands will deploy proprietary and partnered brands across entertainment and consumer product categories.

Falcon’s Creative Group

For twenty-two years Falcon’s Creative Group has executed master plans, design, and media production projects all over the world, winning over 30 industry awards, and creating the capacity to serve billions of guests. The decades of experience as a third-party consultant sets up Falcon’s to now develop physical entertainment attractions and Intellectual Property for their own account. Their historical success is supported by the fact that 58% of first-time clients have returned for additional services, the scope of which expanded by 60x. Specific projects have included master plans for Lionsgate Zone in Dubai, U.A.E. and Atlantis Sanya in Hainan Island, China. Attractions and experiential destinations have included Hulk Epsilon Base 3D in Dubai, U.A.E. and Kennedy Space Center Heroes & Legends in FL, USA. Captivating media projects have included Become Jane: The Evolution of Jane Goodall, in Washington, DC, and Halo: OutPost Discovery which toured across the USA. Experiential Restaurant and Retail developments have included Finn & Jake’s Everything Burrito and Marvel Vault Store, both at the IMG Worlds of Adventure Theme Park in Dubai. FBY’s award winning technology includes experiences such as Spheron, CurcuMotion, Falcon’s Vision AR Headset, the GameSuite gameplay ecosystem, Suspended Theater, SpectraVerse, ONIX Theatre, and AEONXP technology. In the course of developing the above projects and technology, multiple patents have been granted in more than a dozen countries. Below are links to short video presentations for just a few of the just named projects.


(point & click, point & click on link)

https://vimeo.com/227291407  “IMG” Worlds of Adventure, Dubai –

https://vimeo.com/372003261 – Halo: Outpost Discovery

https://vimeo.com/477784289 – Gamesuite ecosystem

https://vimeo.com/111864378 – Suspended Theatre

                Current projects:

As shown in the first chart below, Falcon’s Creative is finalizing the full concept master plans for five “third party” theme parks, estimated to amount to $655M of goods and services, in addition to about $100M relative to the JV with Melia’.  Applying the estimated gross margin of 30-35% to services and 17-18% to hardware, the total gross margin (at the midpoint) would be $158M. Based on the timeline shown on the chart just above, one fifth of that would be about $32M of annual gross margin generated for Falcon’s.

Not shown below, Falcon’s is also actively developing the pre-concept master plans for three unique theme parks, as well as the full concept design for nine specialty themed hotels, each of which can generate subsequent phases of design.

There is continuing support of Qiddiya, one of a series of giga-projects in Saudi Arabia, designed to consist of 367 square kilometers of family friendly theme parks, sports arenas (suitable for int’l competitions), academies for sports and the arts, concert and entertainment venues, motorsport racetracks and nature/environmental adventure activities. To date, for Qiddia Falcon’s Creative has led the design of 26 distinct entertainment assets ranging from hotels to theme parks. This has also included the design of the region’s largest water theme park, spanning 252,000 square meters and combining 22 wet and dry attractions alongside competition level water sports facilities. Falcon’s is also now supporting the project in the role of creative guardian as construction advances.

Creative (as a segment of Falcon’s Beyond) is operating, safe to say, with a substantial positive cash flow. Subject to the timing of individual projects, the Creative segment of daily activities seems capable of generating something like $25-35MM of annual EBITDA. That should contribute substantially to the asset building brick and mortar activities with Melia’ and otherwise, as well as support the asset light activities of Falcon’s Brands.

Falcon’s Beyond Destination is currently comprised of the hotel and Katmandu theme park in Mallorca, with three 50-50 projects under way. The hotels, contributed by Melia’ and the Katmandu parks built and financed by Falcon’s, will be part of the 50-50 joint venture. Falcon’s Central the adjacent retail, dining and entertainment venue will be built, operated and 100% owned by Falcon’s.

The model for the Falcon’s Destination/Melia’ Joint Venture was the Sol Katmandu Park and Resort in Mallorca, Spain, the park having been established in 2007, whose performance improved substantially after merging with the adjacent Melia’ hotel in 2012, complemented by the Falcon’s designed Katmandu compact theme park.  The design of this combined “entertainment with rooms” destination makes it convenient for guests to visit throughout the day and evening. Falcon’s developed stories, characters and environments to transport guests to Katmandu via immersive theming from entry through queues into each attraction.  The theme park, prior to COVID, averaged over 240,000 visitors per year, generated in only seven months per year. The hotel’s average occupancy was 77%, 6 points better than non-Katmandu hotels in Mallorca, with an average room rate of $154, 11% higher than non-Katmandu rooms.

The improvement in Mallorca, and the working relationship between Falcon’s Chairman, Scott Demerau, with Melia’ encouraged the formation of the JV. Melia’ has more than 350 resort and beach destinations across over 40 countries. Scott Demerau’s team has the theme park operating experience, and Cecil Magpuri leads the Creative production of a leading-edge entertainment experience. Melia’, by contributing an existing hotel to the JV, is betting that their 50% of the theme park (which Falcon’s is building) plus their 50% of the improved hotel cash flow, with higher room rates and occupancy, plus more business at other properties they may own in the area, will be more than their current cash flow from the hotel.  Falcon’s is getting access to premium resort real estate owned by Melia’ that would be largely untouchable at today’s values. Both Melia’ and Falcon’s will benefit from Melia’s long term banking relationships, in addition to Falcon’s new access to US capital markets.

As the charts below from the Investor Presentation show: Within the joint venture are the Mallorca Sol Hotel and Katmandu theme park, plus the hotels and theme parks in Punta Cana (Dominican Republic, Tenerife (Canary Islands) and Playa del Carmen (Mexico).  It should be noted that all are year-round tourist locations, 3.5M annually in Punta Cana, 8.4M in Tenerife and 12.5M in Playa del Carmen (excluding cruise ship visitors).

By mid-2025 the joint venture expects to own and operate four destination resorts with over 1,900 hotel rooms, four theme parks, and three 100% owned retail districts. As shown below, the capitalized value of this brick-and-mortar portfolio could approximate the initial valuation of the deal, possibly more. Primary monetization of these developments will consist of hotel bookings, entertainment ticket sales, retail & food & beverage sales, and management fees.

Joint Venture Economics

The Joint Venture, once all three new locations are opened and ramped, is expected to generate, after capex, about $125M of annual Cash Flow. Falcon Beyond’s 50% share would be about $63M, as shown in the chart below. We note the reference on the left “we expect to take advantage of Melia’ longstanding banking relationship to secure attractive banking terms.” Leverage is calculated at 40-45% loan-value, which generates a 37% pretax return on equity for Falcon’s Beyond. The calculation, as shown in the Investor Presentation is just below:

              Falcon Central – the concept and the economics

Falcon’s Central is the “signature” venue at the center of the theme park, merging retail, dining and entertainment. Guests are exposed to a multitude of entertainment experiences, amenities, IP content and merchandise. Dining experiences are offered both from local restaurants as well as newly developed concepts. The shopping district offers both local and global retailers showcasing varied IP-infused merchandise. Attractions featured at Falcon’s Central will be VQUARIUM, a virtual adventure, STORY HUB, an immersive location-based entertainment experience, CURIOSITY PLAYGROUND, an experiential edutainment venue, and GAMEHUB, an immersive video game experience.


The chart, as presented in the Investor Presentation, shows Falcon Central’s Cash Flow, after capex and interest, from the three new locations amounting to $44M, generating a 36% pre-tax return on equity. Once again, as with the theme park development, Melia’ banking relationships are expected to be instrumental (Borrowing $96M out of $217M initial investment).

      Total Hard Asset EBITDA Generation (and capitalized Value)– at  mid-’25 Run Rate

As described in the discussion above:

When the three new locations are completely opened by mid-2025, the Joint Venture with Melia’ is expected to be annualizing (for Falcon’s Beyond) EBITDA at $73M, before maintenance capex of $5.5M. Falcon’s Central (100% owned) is expected to be annualizing at $53M before maintenance capex of $5M capex.  The EBITDA annualized run rate on “hard assets”, after maintenance capex, is therefore expected to be about $118M. The difference between that and the $146-$156M of total EBITDA is expected to be generated by Falcon’s Creative, which appears reasonable based on the backlog of projects and the commensurate margins.

Capitalized Asset Value

Cash flow generation obviously has a value, depending on the reliability of the cash flow, and the cap rate provided by capital markets. The following table shows the calculation behind an asset value of $954M to $1.451B, depending on cap rate.

Falcon’s Brands – Last but Far from Least – the Asset Light “Kicker”

Falcon’s Brands will deploy and monetize owned and partnered brands. The unique brand expander strategy compresses the normal timeline for brand monetization, will do so across multiple venues, and include licensing agreements across outside channels.

This effort is led by both internal talent, and outside advisors including Board members. It will include multi-media story telling by way of social media, films, books, comics, gaming, VR, apps, music, podcasts, audio books, etc. Consumer products will also be developed, enabling rapid monetization of IP with minimal investment. FBY’s technical expertise will align with prominent global partners to distribute toys, games, apparel, collectables, electronics and published goods.

Distribution can take place through brick and mortal retailers, online direct to consumer, as well as in 3rd party marketplaces.  A variety of characters and universes are already in the library of brands within Falcon’s.

A number of strategic partnerships with leading developers and distributors of brands are already in place to jumpstart this effort. The synergistic effect of FBY’s three divisions should be noted, since each project done well by a particular segment builds long term value for the others.

Falcon’s Beyond Brands is expected to be, over the long term,   a one third contributor to total corporate EBITDA, equal to each of Creative and Destinations.


The following chart from the Investor Presentation provides a summary of cash coming and going between the Business Combination (estimated at year end ’22) and mid-2025. It shows cash provided by the SPAC ($222M), Private Placement from Falcon’s affiliate ($60M), Secured Term Debt of Falcon’s Central ($96M) and Cash Flow from Operations (Creative and Destinations) ($110M). Outflow includes Transaction expenses ($46M), Falcon’s contributions to JV ($161M), Falcon’s Central capex ($ 217M). There is a $63M “cushion” to allow for SPAC redemptions.

Adjustments to financial plans, for better or worse, are always a possibility. Good news is not of concern to investors but, in consideration of possible short-term disappointment:  should redemptions amount to more than expected, projects open late or do less well than expected, or financing not be available as planned, the positive current operating cash flow from Creative would allow for adjustments in timing, rather than elimination, of future projects. The predictable positive operating run rate would also buy time to arrange alternative financing for brick-and-mortar projects. While short-term results could be affected, longer term plans would (hopefully) remain intact.


The following chart summarizes the transaction. We have written before, and above, about the improvements in comparison to a typical SPAC structure. Most notable is (1) The starting valuation is a modest 6.7x projected annualized EBITDA in about 2.5 years.  (2) The current operating cash is presumably positive. (3) Principals within the company to be purchased are staying, owning over 80% of the new company, and investing (through an affiliate) an additional $60M. (4) Sponsors are giving up 20% of their inexpensive shares. (5) SPAC investors remaining will receive an 8% preferred stock for half their shares. (5) Earnout shares will not be issued for at least a year and when the stock is $20, $25, and $30/share. (6) Sponsor, affiliates and board members are well equipped to provide strategic guidance.


The charts below, from the Investor Presentation, show how reasonably valued Falcon’s is, based on the growth rate, EBITDA margins, and mid-2025 projected EBITDA. These numbers, to us, are mostly illustrative of the substantial re-rating possibilities for Falcon’s stock if and when they have produced the results as projected.

CONCLUSION: As provided above

We have more to learn, from the S-4 when filed and our further research, but it seems at this point that success is more a question of how much and when, rather than if. The professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. A billion dollars is a significant starting valuation, but the ROI on over $200M of SPAC proceeds, invested productively in brick & mortar projects, and the earnings power at the Creative division should support a good portion of that.  Moreover, the value of Falcon’s 50% portion of just the first few projects with Melia’ Hotels could approximate the initial $1B valuation.  Longer term, more Destination projects with Melia’ and others, expanded Creative business with Qiddiya and others, and Brands could combine to double the projected mid-2025 EBITDA of $150M by ’27-’28. It is a crucial consideration that current Creative operations are cash flow positive, available for the development of brick & mortar assets. This feature, along with the banking relationships of Melia’, should allow for growth as planned, even without a broad vote of confidence from current FZT shareholders. The possibility of $150M annualized EBITDA in only about 2.5 years, combined with the potential to build billions of value attached to brick-and-mortar assets makes the current $1B starting point appear reasonable. Precise timing of events is always uncertain, and the degree of success cannot be assured, but the intellectual, physical and financial assets seem to be in place. While, per Yogi Berra, “Predictions are always difficult, especially about the future.”, uniquely positioned Falcon’s Beyond provides an unusually attractive investment proposition.

Roger Lipton














It is obvious that the excitement surrounding Special Purpose Acquisition Companies has waned. After hundreds of BILLIONS were raised over the last several years, there were zero SPACs funded last week. The average SPAC that accomplished a Business Combination is trading down something like 35% from the $10 issue price. Still, according to Nomura Securities, there are 132 SPACs trying to get funded, to the tune of $22B. and there are 580 SPACs seeking acquisition targets, with $152 Billion in trust. This bankroll, with leverage, could produce well over $500 billion in purchasing power, however:

Since the general market, most notably the speculative sector, is down substantially, current SPAC shareholders may be tempted to cast a negative vote relative to a proposed deal and retrieve their capital completely, which would be a “win” in this environment.


Our readers know that we have consistently been skeptical of the activity in the SPAC space, but “help is on the way”. In particular, the Sponsors of FAST Acquisition Corp. II (FZT and FZT.U) have made some material adjustments to the basic structure of their prospective Business Combination, all of which are materially beneficial to the public shareholders. We have followed all three SPACs (FST, FZT and VELO) that were formed by this Sponsorship Group and their holding company, &vest, since we have known some of &vest’s principals for decades. The just announced proposed deal between FZT and Falcon’s Beyond is intriguing, to say the least, and we will report on the fundamentals over time. Relative to the SPAC space, and the new less speculative stock market, the SPAC structure, as reformulated by FZT principals, is worthy of description. Beneficial as it is for shareholders, therefore useful as it will prove to be for SPAC sponsors, it is described below. References to the FZT/Falcon’s Combination are intended to be illustrative of the new SPAC “structure”, not a detailed description of this particular deal. We will report more regarding the operating fundamentals of the proposed Business Combination as time goes by.


If you can forgive the metaphor: Everybody knows that the SPAC castle has burned down, but from the ashes an ember sometimes continues to burn. Our readers know that we are not generally a fan of SPACs because too often:

  • The credentials of the Sponsors are often more of a “celebrity” than an operating nature and the operating principals at the selling company are sometimes selling and/or leaving.
  • The resultant starting valuation is many years ahead of the near-term fundamentals.
  • There is uncertainty as to whether the SPAC investors will agree to the proposed Business Combination, and the presence of their funds may be necessary for a closing.
  • There is substantial downside risk if the earnings are late or less than expected, because the starting point may be more of a “plan” than a “existing business”.
  • There is often substantial dilution of the public shares by earnout incentives that depend on short term stock price rather than longer term results. If there is a short term move in the stock, the dilution can take place though the stock price quickly falls back and the fundamentals are still far in the future.

In this case, at this time with so much disillusionment regarding SPACs, the Business Combination between FZT and Falcon’s Beyond provides a number of fundamentally attractive features. Moreover, Sponsors and Underwriters of FAST Acquisition Corp. II have adjusted the deal structure to help eliminate the above negatives:

  • The Sponsorship group and proposed Board of Directors have outstanding brand building credentials in the hospitality/restaurant/retail industries. Included are &vest’s Doug Jacob (co=founder of &vest), Bill Hinman (partner of &vest and  former  Director of the SEC’s Division of Corporate Finance), Sandy Beall (partner of &vest, founder of Ruby Tuesday’s, founder of Blackberry Farm and Blackberry Mountain) and others. The operating partnership with prestigious Melia’ Hotels speaks for itself. Furthermore, the “sellers” are accepting stock and staying, putting their entire business careers into the new venture. Lastly, an affiliate of the seller will contribute up to $60M to the new company, $20M of which is already in place.
  • The first project, in Punta Cana, Dominican Republic, opens in early 2023, within months of the Business Combination and calendar 2024, with $150M of projected EBITDA, will be little more than a year away. Melia’ Hotels will be contributing existing hotels, situated on attractive resort real estate, as part of their contribution to the 50-50 jV, providing brick and mortar value to the new Company. Lastly, even if projects should be delayed for some reason, indications of success will not be long in coming as the Punta Cana project inaugurates the new effort in a very few months.
  • This transaction will likely move forward, even with substantial SPAC redemptions. The projects are largely pre-funded, an affiliate of the seller will provide up to $60M, and Melia’ operating credibility and contribution of brick and mortar should provide a range of financing alternatives.
  • The risk is fundamentally less than normal here because brick and mortar hotels will be contributed by Melia’ as each project moves forward. In addition, the downside risk is reduced because half of the public’s common shares will be exchanged into an 8% convertible preferred stock.The Sponsor is also forfeiting 20% of their “promote”, to be reallocated between Private Placement and non-redeeming public investors. Depending on redemptions, the effective discount (stock dividend) will be from 6.1% to 8.1% from a theoretical $10.00 purchase price.
  • The potential dilution from earnout shares is a non-factor because that would take place only after one year, triggered in tranches at the much higher levels of $20, $25, and $30/share, at which point public shareholders will have already made substantial returns.


It’s possible that the FZT/Falcon’s Beyond deal would take place with or without the adjustments detailed above. In our mind, however, the new structure provides a much more balanced approach between “organizers”, operating principals and the public investors and is no doubt a function of &vest’s  navigation of the SPAC market over the past few years. There is less of a “promote” for the organizers and underwriters, the exit for the operating principals is longer term in nature so more dependent on building the business, not just the stock price, so the reward/risk profile is far more attractive for public investors. We look forward to following the progress of the above described transaction as well as developments in the general SPAC space.

Roger Lipton




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



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


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


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

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

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

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

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

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


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

We will report further on this dynamic situation over time.

Roger Lipton



It should be no surprise to anyone that SPACs, or “blank check” companies, have become very popular. About $80B was raised in 2020 for use by these investment vehicles, and just about the same amount in only two months this year.

There are five SPACs, formed by Sponsors that have a background in the restaurant industry, in total raising about $1B, which can support a cool $5B or more in acquisition activity.  BurgerFi has been brought public, FAST Acquisition Corp (FST) is working to merge with  Tilman Fertitta’s hospitality empire, Tastemaker  (TMKRU) and Union Square Hospitality (HUGSU) have raised  funds and are conducting their search. Cliff Hudson (ex-CEO of Sonic) is planning a $125M offering.


We’ve written before how Sponsors can make anywhere from 10x to 50x their investment over perhaps five years (hopefully less) with minimal risk if the SPAC funds are raised and if they have reasonable success managing the Business Combination (BC).

Public investors, typically at $10/unit, which consists of a share and some portion of a warrant, have an apparent “no lose” proposition because they can redeem their share for approximately $10 if they don’t approve of the BC. The Sponsor is given up to 24 months to complete a BC. Investors feel, therefore that they can “always” get their money back and they have substantial upside in the meantime because the SPAC Units often trade at a substantial premium to the $10 offering price well before the BC is completed. Before the BC comes to a vote, therefore, and redemption becomes an active  option, the SPAC investor has the opportunity to sell their shares into the marketplace, hopefully at a premium to the $10 issue price, and the warrant can be retained  as well.


We’ve said “always” and investors in may feel “always” because nobody in a bull market worries about  technicalities, but that does not mean “any time”. The redemption right is only effective at the time of the shareholder vote, 24 months down the road. Between now and then, the SPAC Unit trades like a closed end fund, at a premium or a discount to the issue price. While it is true that most SPACs are currently trading at a premium to the $10 issue price, there is something like $100 billion worth of SPACs that have not formally proposed their BC and therefore could trade at a discount rather than the premium most prevalent today. When we consider that, with the hundreds of billions of dollars chasing deals, at least $5B (with leverage) in the restaurant industry  alone, lots of SPAC Sponsors will propose an obviously high price to complete a deal before time runs out. If the marketplace doesn’t like the appearance of the proposal, the SPAC shares could quickly go to a discount and investors would have to wait for the formal vote before redemption could be requested.

We can provide a couple of examples of this phenomenon.


Fifteen years ago, prior to the ’08 –’09 financial crisis, a popular investment vehicle, Auction Rate Securities (ARS), became popular. Something like $200 billion of these securities were sold by underwriters, whereby investors could get a higher yield than was possible in money market funds. The ARS were invested in a variety of fixed income securities, including money market funds (who were guaranteeing $1.00/share) and a variety of other fixed income investments. There was an “auction” of each ARS portfolio every 7 to 35 days, whereby a new interest rate would be fixed. The underwriters “guaranteed” that an investor could “always” sell their ARS shares at $1.00/share, largely based on the fact that the ARS included (but was not limited to) money market funds.

In Feb’08, money market funds allowed their shares to “break the buck” because their portfolios were not liquid enough to meet redemptions, and the ARS market froze as well. Investors (including this writer) had their funds literally frozen, not redeemable at any price. There was an obscure technicality, under certain conditions, that allowed the ARS Sponsors to do this. As it turned out, the US Government guaranteed the hundreds of billions that had been invested in money market funds, which allowed the ARS Sponsors to redeem those shares, close to par value, as well. This process took about eighteen months. No harm, no foul, but it took a while.


More recently, on December 22nd, we wrote about the Grayscale Bitcoin Trust (GBTC, a closed end fund owning Bitcoin). GBTC was, on 12/22/20, trading at a 40% premium to the Bitcoins that were held. GBTC today trades at a 12% discount. Bitcoin has gone from $22.3k to $48.2K (up 116%) and GBTC has gone from about $30/share to $41/share (up only 28%). Investors obviously haven’t participated anywhere as much as they anticipated in the Bitcoin “play”.


A prospectus for a SPAC  typically runs 200 pages, and contains a great deal of legal jargon. Just as was the case with Auction Rate Securities fifteen years ago, there could be some basis by which redemption might not be as easy as it seems. (It’s always easier to get someone to take your money than to get it back.) Setting that possibility aside: redemption of shares, anticipated in the prospectus to be close to the $10 issuance price of the Unit, is typically offered along with the shareholder right to approve the proposed Business Combination.

Between now and then, however, the investor funds are “at risk”. They can sell at a premium to the $10 redemption price (which has so far most often been the case), but discounts are possible as well. Investors in SPACs should not risk any funds that cannot stay in place until the Business Combination is proposed and the redemption provision becomes effective.

Roger Lipton


FOLLOW THE MONEY with Roger Lipton, reprint from 2-15-21 edition of RESTAURANT FINANCE MONITOR  

Roger Lipton is writing a regular column for the monthly publication of the “must read” Restaurant Finance Monitor – provided below:


The answer is: not by much and not for long. It is naïve to think that the consumers’ pandemic induced financial trauma, just as with our parents after the 1930s depression, will not lead to a downward adjustment in longer term spending patterns. Surveyors at the NY Fed found that 2/3 of the 2020 stimulus went into savings or debt paydown. According to economist, (the best) David Rosenberg, bank credit to individuals is down more than 3% from a year ago, which hardly ever happens, and credit card balances are down 10%.  The household savings rate, as a percentage of discretionary income, spiked from 7% pre-pandemic to over 30% in late March and April. It is now running about 13%. Rosenberg says that if it settles at 10%, up from the 7% norm, that 3 point difference would trim retail sales in general by 10% and slice a full point off aggregate consumer demand in the future. Some restaurant segments will obviously be affected more than others, but this may be one reason that, even with the first new stimulus checks in the mail, BOGO and $1 menu items are being promoted again. There will likely be a short term relief driven uptick in consumer spending as vaccines and herd immunity take hold, but strong sales comparisons compared to a year ago should not distract us from longer term concerns.


Meatless burgers and other proteins went mainstream about 20 months ago. Several suppliers, most prominently Beyond Meats (BYND), received enormous publicity and many restaurant chains spent a great deal of money introducing new burgers, sausage and chicken substitutes. BYND came public at $25/share in May, ’19, and ran to $230 in just a few months (almost as good as Gamestop recently). BYND settled down and traded in a broad range between $75 and $150/share until just recently when deals with Taco Bell and Pepsico were announced. All you need to know these days, about the importance of meatless products to the restaurant industry, is that everyone is developing natural, not “meatless”, chicken sandwiches (thank you, Popeye’s, for leading the way). On our website 18 months ago, relative to the meatless craze, we suggested “this too shall pass”. This is not to say that a market does not exist for meatless proteins. It’s just that no particular restaurant will have an edge and there will be plenty of competition among manufacturers. The bright side is that the cost/unit is coming down as production ramps up, so restaurants do not need to price the product at a premium. Fundamentals aside, BYND trades, on February 8th, at $168/share with an $10.6 billion market value, at almost 13x ’22 SALES and over 200x ’22 estimated EPS. The music is playing so the dance continues.


A predictable question at every restaurant conference workshop is “how big do I have to be to attract private equity capital?” The panelists representing the various private equity firms dutifully describe the need for (1) well regarded management (2) excellent unit level economics (3) a concept proven in various markets (4) a well positioned concept, these days such as fast casual, rather than big box entertainment (5) a store level EBITDA of 20% of sales, amounting to at least $5M systemwide. On the other hand, my response would be: “It is not about size. Beauty is in the eye of the beholder “. Capital can be raised, perhaps not from Roark or L Catterton who are looking for “size” these days, but there are plenty of smaller private equity firms that can be seduced by a proven operator with a couple of units that are doing very well. I have suggested that, a while back Norman Brinker could have raised money with a concept alone, just as today’s “Norman”,  namely Danny Meyer. Enter the world of SPACs, where over ONE HUNDRED BILLION has been raised in the last thirteen months. BurgerFi (BFI) has been brought public. FAST is recapitalizing Tilman Fertitta’s empire. Tastemaker (TMKRU) is searching for an attractive restaurant chain, and Danny Meyer has just filed to raise $250M. It is not even necessary to have a specific concept in mind these days. The “beauty” of the sponsor is adequate. According to the release, Meyer’s SPAC, USHG Acquisition Corp. “plans to target ‘culture driven businesses……focus on industries including technology, e-commerce, food & beverage, health and retail and consumer goods.’ Relative to the current SPAC craze: this, too, shall pass, but, in the meantime, buckle up!


We are literally following the money by tracking insider buying. There are lots of reason for insiders to sell: portfolio diversification, taxes, kids’ education, divorce, etc. I knew a publicly held restaurant CEO who told me “the only reason I keep working is to afford a third divorce.” On the other hand, insider buying has only one objective and that is to profit from a rise in the stock. Over the last six months, among all the publicly held restaurant companies, I found the following: At Carrol’s (TAST) insiders bought 56,300 shares at $5.25 in November. At Del Taco (TACO) insiders bought about 130k shares in July-August and another 130k shares in October, all at about $7.50. At Potbelly (PBPB) insiders bought 150k shares at about $4.00 in August. At One Hospitality (STKS) insiders bought 15k shares at $2.98 in November. Perhaps the largest insider buying, relative to the capitalization, was at Good Times Restaurants (GTIM) where insiders bought 65k shares at $1.50/sh in Aug-Sep and another 80k shares at $2.25-$2.50/sh in December.  As of February 8th, the first four are up 33%, 31%, 37% and 35%, respectively, and (GTIM) is up about 90%. History has shown that, while nobody knows the company better than the insiders, the timing can be suspect. That’s true, but not lately, and insider buying remains a good starting point for further research.





We have described many times how very low interest rates allow for inordinate amounts of debt to prop up companies to a far greater degree than would normally be possible. We’ve followed Tilman Fertitta’s rise to financial prominence ever since his Landry’s Seafood Restaurant chain become publicly held in 1993 with a valuation of $30M. Fertitta has been active ever since. The details between ’93 and ’20 are interesting, and they follow below. The most concise summary is that the 1993 owner of a modest sized group of seafood restaurants 1993 has built over 28 years a huge hospitality company that is coping, in the middle of a worldwide pandemic, with over $4 billion of debt.

Lawyers and accountants and investment bankers  working for Tilman Fertitta have made a lot of money in the last 27 years.


1994 – purchased Joe’s Crab Shack
1996 – purchased the San Luis Resort, a 32-acre beachfront resort on Galveston Island
1998 – developed the 35-acre Kemah Boardwalk
2000 – purchased Rainforest Café
2002 – purchased Saltgrass Steak House, Chart House and Muer Restaurants
2003 – opened the Downtown Aquarium, a 20-acre entertainment complex in Houston,  followed by other Aquarium Aquarium restaurants in Denver; Nashville and on  the Kemah Boardwalk
2004 – partnered with the City of Galveston to open a 140,000 square foot convention center
2005 – purchased the Golden Nugget Hotel & Casinos in Las Vegas and Laughlin, has  since opened three additional locations in Atlantic City, Biloxi, Mississippi and Lake Charles, LA
2006 – sold Joe’s Crab Shack, which had acquired Crab House and Cadillac Bar

In mid-2008, as the economy and credit markets were deteriorating, Fertitta took Landry’s private, acquiring the public’s 61% for $415M and assuming $885M in debt, making for an enterprise value of $1.3B.

The ’08-’09 crisis ran its course, interest rates continued downward and Fertitta did not rest.

2010 – purchased Bubba Gump Shrimp, Claim Jumper and Oceanaire
2011– purchased McCormick & Schmick’s and Morton’s Steakhouse
2012 – expanded entertainment division, opening the Galveston Island Pleasure Pier
2013 – acquired Mastro’s restaurants, has also bought and built Landry’s  Signature Group, with Vic & Anthony’s; Grotto; Brenner’s Steakhouse;  Brenner’s on the Bayou; La Griglia; and Willie G’s Seafood
2016 – purchased the BR Guest restaurant Group
2017 – purchased, again, Joe’s Crab Shack, having sold it in 2006
2019 – purchased Restaurants Unlimited, adding Skates on the Bay, Portland City Grill, Manzana Grill, Palisade, Cutters Crabhouse, Stanford’s, Henry’s Tavern,   Kincaid’s, Palomino Restaurant & Bar, and Portland Seafood Company
2019 – purchased Del Frisco’s for $650 million, selling Barteca

Aggressive enough ?


Today Landry’s, Inc. owns and operates more than 600 restaurants, hotels, casinos and entertainment destinations in 35 states and the District of Columbia plus numerous international locations.

In spite of a spectacularly successful career in the dining, entertainment and gambling industries, Fertitta is clearly feeling the heat. We are not privy to the gory financial details, but debt, no matter how low the interest rates, can be a problem when an unexpected pandemic takes revenues down by more than 50%, even for a little while.

To demonstrate how quickly fortunes can turn: Fertitta had reportedly paid himself $300M in 2019 and refinanced his company’s debt so no principal would be due until 2023. Moving right along, in late 2019 he was apparently shopping a 49% stake in the Landry’s/Golden Nugget empire. The pandemic hit in March and everyone’s life changed, Fertitta’s not the least. To his credit, he has been open about the strain, said he was a “big boy”, would solve his own problems and not use government PPP funds. He re-invested $50M out of $200M he had taken out in a dividend just a few months earlier and sold $250M in company debt in April at a 15% interest rate.

Most recently, his attempts to refinance have apparently generated interest in the gaming piece, but the restaurants and destination resorts are an obvious problem. A big issue, predictably, is the debt, now about $4 billion, including $1.4B that was spent to buy the Houston Rockets basketball team. The company is apparently generating about $400M of EBITDA currently (pandemic adjusted?). In any event, quoted debt of anything like ten times EBITDA is pushing the capital raising envelope pretty far.


With all that as background, there are of necessity  some large moving pieces right now as Fertitta, said to be worth $5-6B, tries to maintain solvency for his empire. The SPAC space is hot, and enormously productive for aggressive entrepreneurs, so the three SPACs that Fertitta has recently sponsored can play an important role.

The first recent SPAC sponsored by Fertitta, Landcadia Holdings raised $250M in 2016, and ultimately bought a small food delivery company, Waitr Holdings, now trading as WTRH. This relatively small regional player has grown over the last several years, but at a much slower rate than DoorDash, Uber or Grubhub. Revenues in the current fiscal year will be about $209M , up about 10% YTY, and are estimated to grow modestly to $217M and $232M in the next two years. In contrast to most of the the larger players, WTRH has turned profitable, expected to earn $0.17/share this year and $.19 next year. However, the much smaller size and relatively unexciting growth rate has not led to a high valuation. Unfortunately for Fertitta’s near term financial needs, the stock is trading at $3.40/sh, down from the $10 IPO, and way below a price that would help much.

Fertitta’s second SPAC has done well so far. Landcadia Holdings II came public in May, 2019 at $10/unit, raising over $300M. In mid-2020, Landcadia bought the online gaming portion of Golden Nugget and (GNOG) now trades at about $20/share with an $804M market capitalization. Setting aside the pre-merger expenses, GNOG had $55M in total revenues in 2019 with operating income of $17.7M and Net Income after taxes of $11.7M. The valuation is very high, and some observers feel that GNOG is not as attractive as larger competitors such as DraftKing (DKNG, also the result of a SPAC), but the main thing for Fertitta is that the 4.1M shares that the proxy material says he and his affiliates  own are worth about $80M, and should be, at least partially, liquid.

Fertitta’s third SPAC, currently looking for an acquisition, is Lancadia Holdings III (LCAYU), which raised $500 million on 10/10/20. Co-Chairman of LCAY, along with Fertitta, is Richard Handler who is currently the CEO of Jefferies, the investment banking firm that has been a constant presence throughout the creation of Fertitta’s empire. As stated, “the company plans to target the consumer, dining, hospitality, entertainment, and gaming industries, including technology companies operating in these industries”. The jury is still out on this one. It remains to be seen whether this SPAC buys into any portion of Landrys.


When I was about to write: “Tilman should write a book.” I checked Amazon and it turns out he has. The  title is “Shut Up and Listen! Hard Business Truths that Will Help You Succeed”

I haven’t spoken to Tilman Fertitta in thirty years, haven’t even read his book, so I have no “axe”, but I would not bet against him. His empire would not be easily managed (or efficiently  monetized) by anyone but himself. It’s been said: “If you owe the banks a million dollars, you’ve got a problem. If you (in this case) owe the banks four billion dollars  they’ve got a problem”.  Tilman will lose a lot of sleep, if he hasn’t already, but at the end of the day his company will function long enough for the burden of the pandemic to abate. There are trillions of dollars out there “reaching” for a yield. There will be a price, but some of that capital will most likely reach in Tilman Fertitta’s direction.

Roger Lipton




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



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