One would think Andy Wiederhorn would take a break.
After all, the CEO of Fatburger and Johnny Rockets owner Fat Brands had just announced the company’s latest deal, and by far its biggest, a $442.5 million cash-and-stock acquisition of Global Franchise Group, the owner of five franchise brands in all and a deal that will triple his company’s size.
But Wiederhorn is not the type to take a break, not while there are other restaurants to be bought.
“This is not the end,” he said in an interview. “I think, knock on wood, there will be another material acquisition in about a month or so.”
That’s how it goes for Wiederhorn, who has navigated financing and fundraising challenges and a pandemic to not-so-quietly build a force in the franchise restaurant business. His latest deal, in fact, vaults him into major company territory.
Global Franchise Group operates five franchised chains: Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker. The deal will triple Fat Brands’ EBITDA, or earnings before interest, taxes, depreciation and amortization, and it will take revenues from $36 million to over $100 million. “This is really a triple for us,” he said.
Fat Brands has been acquiring mostly smallish chains since 2017, when it acquired the struggling concepts Ponderosa and Bonanza just as it went public in a “mini-IPO.”
Its 2019 purchase of the better burger brand Elevation Burger is a perfect example of the creative dealmaking for which Wiederhorn is known. Fat Brands acquired the company for $10 million, though with deal terms that featured so many provisions and relatively little cash at the time that created a wide range of actual outcomes.
This one is a typical cash-and-stock deal, however, and one with “upside,” Wiederhorn said. Purchasing Great American Cookies comes with a manufacturing plant that Wiederhorn says is only about a quarter in use, but accounts for $15 million of the $40 million in EBITDA he is acquiring.
Figure out how to use the rest of it and the deal could look a lot better. “You execute there you pay for the whole business yourself,” Wiederhorn said.
There are opportunities elsewhere in the acquisition. Round Table, Wiederhorn said, has some untapped potential in third-party delivery. The pizza chain doesn’t use such services, but he believes it could gain new customers by using the aggregators—similar to Papa John’s use of such services despite its own network of drivers.
“They’re not using third-party delivery to their advantage to capture new customers and convert to your own order system,” Wiederhorn said. “Third party has value when you get new customers from all the users on the app. It’s a big opportunity that hasn’t been executed on yet.”
Hot Dog on a Stick, meanwhile, could find itself in a lot more locations by placing its branded hot dogs on the menu of, say, Fatburger.
“There’s a lot of upside in these brands,” Wiederhorn said. “They haven’t been promoted.”
To be sure, it’s one thing to buy Elevation Burger or even Johnny Rockets—its previously biggest deal at $25 million last year.
It’s another to acquire a five-franchise brand that will take your company from eight concepts to 13 while bringing the total number of global locations to 2,000 and system sales to $1.4 billion. Bringing that business into the fold could be complex.
But Wiederhorn said the company can take its time folding Global Franchise Group into the fold. “This has a completely independent management team and operation,” he said. “We can take our time to integrate it as we see fit.”
Fat Brands is generally about synergies. Wiederhorn said the company has been able to “wring a lot of overhead” out of Johnny Rockets, for instance, increasing its EBITDA run rate to $8 million from $2.5 million simply by erasing duplication. In this case, however, “there is no gun to our head timing wise,” he said. “We’ll do it as we need to.”
As for further acquisitions, Wiederhorn pointed to MTY Global, which has dozens of brands in Canada and the U.S., and apparently beat out Fat Brands in its 2019 acquisition of Papa Murphy’s. To be sure, Wiederhorn said, “I have no desire to own 55 brands,” preferring bigger deals from here on outside of periodic “bolt-on” deals for smaller concepts that could be folded into its existing chains.
He just lost out on a smaller chicken wing chain, for instance. “I just had one slip away last week for no reason other than the recovery,” Wiederhorn said.
So maybe Fat Brands doesn’t get to 55 brands. But it will continue to grow. “We’re just getting started,” Wiederhorn said.