The parent of Pappasito’s Cantina is set to acquire On The Border Mexican Grill & Cantina out of bankruptcy.
Houston-based Pappas Restaurants said Thursday that it won the auction for the 80-unit Tex-Mex chain, which filed for bankruptcy in March.
Pappas had positioned itself early in the process by providing $10 million in financing to On the Border and acting as the stalking-horse bidder, which meant its bid set the minimum asking price for the chain.
On The Border filed for Chapter 11 bankruptcy in March in Georgia, citing rising labor costs, declining customer visits and inflationary pressures. It had closed 77 underperforming restaurants prior to the filing.
Pappas had not responded to questions about the amount of its winning bid or whether it planned to close more locations.
The deal would combine On The Border's 60 restaurants across the U.S. and 20 in South Korea with Pappas' nearly 90-unit group, which includes Pappasito’s, Pappadeaux Seafood Kitchen, Pappas Bros. Steakhouse, Pappas Bar-B-Q and five other brands, mostly in Texas.
It would give the group the second largest Mexican casual-dining chain in the country in On the Border, which generated nearly $225 million in U.S. sales last year, according to Technomic data. Pappasito’s Cantina, with 23 units, did $123.5 million, per Technomic.
Combined they would still be smaller than segment leader Chuy's, which had more than $488.2 million in systemwide sales.
Pappas said it plans to modernize On The Border locations and update its menu and operations while maintaining the brand's atmosphere and menu favorites. It’s known for fajitas, margaritas and other Tex-Mex fare.
"We're excited to welcome On The Border to the Pappas family," said Mike Rizzo, CEO of Pappas Restaurants, in a statement. "On The Border is a brand with deep heritage and loyal guests, and we see tremendous opportunity to invest in its future."
The transaction is expected to close in the coming weeks, pending bankruptcy court approval.
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