When Pinstripes Holdings filed for bankruptcy earlier this month, it represented a low point in the already weak history of restaurant mergers via SPAC.
As a reminder, the bowling-and-bocce-focused concept went public in a merger with a SPAC, or special purpose acquisition company, in late 2023. Its was on the market a year later. Its stock was delisted 15 months after the merger and it was in bankruptcy protection within 20 months.
It calls to mind another recent SPAC merger. BurgerFi went public via SPAC in 2020. BurgerFi acquired Anthony’s Coal-Fired Pizza in 2021. By 2024 the company was in bankruptcy and each of its brands sold.
It also continues a weak track record for restaurant industry SPACs. Those companies that do end up getting a deal done typically don’t last long on the public markets.
In a SPAC, public investors buy shares in a shell company. The executives behind the shell company use the funds they raise from those SPAC IPOs to make an acquisition. The acquired company merges with the shell company, thereby going public.
Executives frequently like SPAC mergers because they’re relatively easy to accomplish when compared with a traditional IPO and take a lot less time. But they are also riskier than traditional offerings, because they don’t have the level of due diligence of a traditional public offering.
In addition, companies that do go public via SPAC miss out on one of the biggest benefits of a traditional IPO: The sheer level of public attention paid to companies that go public. IPOs tend to be celebratory occasions that generate publicity for those companies, which translates into sales.
The fast-casual chain Cava generated double-digit same-store sales in nine of 10 quarters following its 2023 offering.
That said, over the long term, a lot of restaurant IPOs end up struggling to generate the type of valuation growth that sponsors often envision.
Consider 2021, when five restaurant companies went public through traditional means. Only one of those companies, Dutch Bros, is currently trading above its IPO price. First Watch, Sweetgreen, Portillo’s and Krispy Kreme are all trading below their offering price. So any IPO is fundamentally risky.
The simple fact is, the restaurant business is risky. Many restaurant companies struggle. They need debt and other financing to expand and if sales don’t meet expectations the problems can easily compound. And the spotlight associated with being public can make matters worse.
Some restaurant SPAC mergers do ultimately work out. The most successful restaurant SPAC merger of all time came in 2012, when the company merged with a vehicle spearheaded by the activist investor Bill Ackman. Burger King would go on to buy Tim Hortons and create Restaurant Brands International.
Another SPAC could be deemed a success, at least for investors. Del Taco was valued at $500 million when it went public. When Jack in the Box acquired the chain in 2022, it was valued at $585 million. Had Jack in the Box not done that, it’s possible that Del Taco would be in the same boat, given the chain’s weak performance since then. Regardless, Del Taco is on the market, and will undoubtedly be worth a lot less than $500 million.
That said, most of the SPACs that initially target restaurant companies never actually succeed in finding one worth merging with. Former executives with &pizza, Dunkin’, Applebee’s and Sonic formed SPACs but either never merged with anything or merged with non-restaurant companies.
Some that did find restaurant companies to merge with didn’t complete said mergers.
Panera Brands had a deal with Danny Meyer’s SPAC in 2021. That deal collapsed following the inflation-driven bear market that kicked off late that year. Tilman Fertitta had another deal with a SPAC, Fast Acquisition Corp. That deal collapsed, too—which led to litigation. TGI Fridays had a deal in 2019 with a SPAC. That collapsed due to the pandemic.
Both BurgerFi and Pinstripes ran into problems not long after their mergers. BurgerFi ran afoul of reporting requirements and later closed locations amid weak sales. Pinstripes almost immediately had to start cutting costs. Both situations highlighted the inherent riskiness of SPAC investing.
SPAC IPOs remain relatively popular. Nearly 60% of all IPOs this year has been a SPAC, according to the website SPAC analytics. And quite a few of the companies they ultimately merged with did just fine, such as Hostess Brands and DraftKings. But among restaurants, it’s still an iffy proposition. Assuming they even get off the ground.