If the SPAC boom keeps up its current pace, there will be no private companies left to take public.
The latest blank check company to target a restaurant chain is called Fast Acquisition Corp., and the people behind it are familiar: Sandy Beall, the founder of Ruby Tuesday, &pizza investor Doug Jacob, and former Noodles & Co. CEO Kevin Reddy. Beall and Jacob are the company’s co-CEOs. Reddy is its chairman.
Jacob is the cofounder of restaurant incubator &vest, along with &pizza CEO Michael Lastoria. Garrett Schreiber, a partner in &vest is also involved in the Fast SPAC as its CFO. Former ThinkFoodGroup CEO Kimberly Grant is the chief strategy officer.
Among the directors is executive recruiter Alice Elliot. Lastoria is among a long list of advisors, which also feature NFL players Ndamukong Suh and Todd Gurley. So at least this group will have the blocking and tackling down.
A SPAC is a special purpose acquisition company. It is a shell company raises money from public investors and uses it to fund an acquisition of a private chain. The two chains merge, the shell company takes on the acquired firm’s name, taking it public. They are all the rage right now. Even former U.S. House Speaker Paul Ryan has one.
Fast is clearly gunning to acquire a restaurant, and the group believes there are opportunities in the current real estate market to generate strong growth. “We believe that the current COVID-19 pandemic provides a compelling opportunity,” Fast’s federal securities filing notes.
The filing says that many limited-service brands, “particularly those with strong delivery components,” have performed above prior-year levels. That performance “can be used to clearly evaluate concepts that will be poised for future growth.”
“Additionally,” the filing says, “we believe there is a strong real estate opportunity, with many underperforming concepts shuttering units, and landlords providing flexibility on lease terms.”
The important factor in any SPAC is whether it can make an acquisition, which is hardly guaranteed. There are a growing number of these companies looking to make a deal—we wrote about one earlier this week that may or may not look at restaurants—and the kinds of companies Fast could buy probably have plenty of private suitors, too.
The group is looking for a fast food concept or a fast-casual concept with a drive-thru, strong off-premise and technology. It has to have a large regional or national presence and potential for international expansion, operate an “iconic brand,” and generates between $40 million to $150 million in annual earnings before interest, taxes, depreciation and amortization, or EBITDA.
It would also have a $600 million “or greater” enterprise value. There are not a lot of companies that fit that definition.
For instance, El Pollo Loco currently has an enterprise value of around $600 million, according to data from the financial services site Sentieo. It is currently the 53rd largest chain in the U.S., according to Restaurant Business sister company Technomic.
If we look at private, limited-service brands in the Top 75, while eliminating the too-big Subway, untouchables like Chick-fil-A and In-N-Out and brands owned by Inspire Brands like Arby’s, Jimmy John’s and Sonic, there are about 20 brands that fit the group’s criteria.
That includes some interesting names like Five Guys, Raising Cane’s, Zaxby’s and Firehouse Subs. The vast majority of them would make great public companies. They would also be in very high demand on the acquisition market.
SPACs have a mixed track record in the restaurant business. There have been some real winners, including Burger King, which is currently part of Restaurant Brands International. Del Taco also went public in this manner. BurgerFi is currently going public this way.
At the same time, however, both CEC Entertainment and TGI Friday’s were to go public using blank-check companies, only to see the deals fall through.
Citigroup and UBS Investment Bank are book-running managers. Odeon Capital Group is comanager.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.