Tilman Fertitta has been a dealmaker in the restaurant industry for decades—his companies, Landry’s and Golden Nugget, have made more than 25 acquisitions over the years, spending more than $3 billion in the process. Most of those deals have been done over the past 11 years.
The “Billion Dollar Buyer” hopes to make even more deals as a public company. His company, Fertitta Entertainment, agreed to a $6.7 billion deal to merge with the special purpose acquisition company (SPAC) Fast Acquisition.
“It’s our opportunity to get public quicker instead of an IPO and give us more opportunities to get to market quicker,” Fertitta told investors on Monday, according to a transcript on the financial services site Sentieo. “With COVID disruptions throughout the United States, there’s going to be unbelievable restaurant and gaming opportunities either through [mergers and acquisitions], redevelopment and rebranding.”
Fertitta specializes in buying restaurant companies when their values are low, cutting their costs and improving their profitability. Landry’s operates 446 locations in 38 states, including 238 upscale restaurants, 163 casual dining restaurants and 45 “specialty” restaurants.
He was especially active during the previous recession, when he bought such companies as The Oceanaire, Bubba Gump Shrimp Co., Morton’s and McCormick & Schmick’s when they were either in bankruptcy or struggling.
That said, his company also helps develop high-volume restaurants in tourist areas, particularly Disney.
Fertitta believes there are numerous expansion opportunities now as many segments of the industry remain weak despite overall industry recovery of late.
“If you go back to 2008,” he said, “it was suburban America that was hurting, and we picked up a lot of opportunity.
“This time, it’s urban America in your downtown areas that are hurting and we will pick up a lot of opportunities there.”
To be sure, Fertitta’s company has used a lot of debt to make its acquisitions—the company reportedly found a less receptive market to a potential IPO because of its level of leverage, which likely made the SPAC route more appealing.
Fertitta’s company plans to use funds from the merger to help pay off debt. The company will receive $200 million from the Fast SPAC, and investors have committed another $1.25 billion once the deal is closed. The company plans to use all $1.45 billion to pay off debt.
Once the company is public, Fertitta will retain control, with 60% of the company’s shares.
Landry’s itself has been a private company since 2010—Fertitta bought control for $21 a share, but only after settling a lawsuit from shareholders who accused him of pushing down the price in the aftermath of Hurricane Ike in 2008.
Still, the company has been on an almost constant buying binge since then. And Landry’s argued that it has a track record of improving profits in the aftermath of its purchases.
In 2012, for instance, the company said that Morton’s restaurant-level profit margins were 15.6%. In the first full year under Landry’s ownership, those margins improved to 20.2%. At Bubba Gump Shrimp Co., margins improved to 19.5% in 2010 to 21% under Landry’s.
To be sure, a few of Landry’s companies have not done well of late, even before the recession. U.S. system sales at Landry’s concepts McCormick & Schmick’s, Rainforest Café and Claim Jumper, for instance, all declined by more than 10% in 2019, before the pandemic, according to data from Restaurant Business sister company Technomic. And many of the companies he more recently purchased, including Houlihan’s and Joe’s Crab Shack, were in freefall before he picked up those companies and closed their weakest locations.
At the same time, Fertitta appears to have had an appetite for bigger deals of late—as noted by his 2019 acquisition of Del Frisco’s, which was preceded in the years beforehand of the serial buyer making noise about a deal.
Fertitta also believes that a recovering industry on its own could generate sales and profit growth. “Our simple playbook for growth is return to 2019 volumes,” he said. “If we do that, which we will, we know we’re going to be a lot more profitable because everybody got fat in the last 10 years, 12 years, since the last recession in ’08.”
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