I once joked that Andy Wiederhorn couldn’t pass a lemonade stand without asking about its potential acquisition multiple.
This year, however, the owner of brand collector Fat Brands hasn’t liked what he’s heard, at least enough to pull the trigger.
Fat Brands took something of a break this year after swallowing nearly $1 billion worth of acquisitions in late 2020 and 2021. Yet even as the company prepares to jump back into the market, it is finding conditions to be a lot different.
Specifically, the market is much slower. “Our acquisition momentum is a little bit more cautious given what we’ve seen in the market,” Wiederhorn said.
The problem? Sellers want more than buyers are willing to pay.
Rising interest rates, brought about by a U.S. Federal Reserve intent on getting rid of inflation, has increased the cost of capital. What’s more, stock valuations have come down considerably this year, largely as a result of those higher interest rates.
As a result, buyers do not have the power to pay some of the multiples they’d been willing to pay just about 11 months ago.
“The cost of capital is much higher than it has been before in recent times,” Wiederhorn said. “Valuations have to be adjusted for that.”
But, he said, “sellers’ expectations aren’t always realistic.”
In fairness to sellers, they saw the valuations restaurant chains were fetching just last year and want to get that same price.
Yet the market is simply different than it was last year. Just ask the seven or eight restaurant companies that had hoped to be on the public markets by now. While there have been a few acquisitions in recent months, the market is starkly slower than it was last year.
Few people know how much slower the market is now than Wiederhorn, who used securitization to finance a series of deals that increased the size of Fat Brands several-fold last year. It started with the $25 million acquisition of Johnny Rockets, the $442.5 million acquisition of Global Franchise Group, a $300 million purchase of Twin Peaks and a $130 million acquisition of Fazoli’s.
The company opted to “digest” its deals this year, though it did make a small deal in May for Nestle Toll House Café.
That’s probably along the lines of the types of acquisitions Fat Brands wants to do. The company acquired an Atlanta manufacturing facility when it bought Global Franchise Group, which operates several brands including Great American Cookies. It wants to acquire more brands like Nestle so it can make more cookies and other food out of that facility.
But Wiederhorn mentioned other sectors, such as salads, sandwiches and coffee, where the company doesn’t have any concepts.
“We’re definitely back hunting for new opportunities,” he said.
In our interview, Wiederhorn also reminded me that one of the companies that was part of Global Franchise Group, Hot Dog on a Stick, actually sells more lemonade than it does hot dogs. “I didn’t want you to think I was ignoring those lemonade stands,” he said.