On Thursday, Bloomberg reported that Tilman Fertitta is in talks to merge his company, Landry’s and Golden Nugget, into a special purpose acquisition company (SPAC) run by Ruby Tuesday founder Sandy Beall.
The only surprise there is in the details. Fertitta has been publicly talking about taking Landry’s public, in a bid to access the equity markets so he can make more acquisitions. Merging with a SPAC is one way to do that.
But Landry’s is quite different from the type of company Beall’s SPAC had been targeting. Fast Acquisition Corp. is not called “Fast” because it was targeting an amalgamation of full-service brands and casinos that is Fertitta’s company. Fast would also buy a minority share of Fertitta’s company and the Houston Rockets owner would maintain control.
Fast has been targeting a quick-service brand or a fast-casual concept with an enterprise value of at least $600 million—a narrow target list that featured just 20 or so companies that would likely have fetched an incredibly high multiple after a year in which all people were doing was eating at fast-food concepts.
Suffice it to say, Landry’s doesn’t fit that criteria. But it is quite large. It operates 75 restaurant brands that are all full service, including Del Frisco’s, Houlihan’s, McCormick & Schmick’s, Morton’s and Bubba Gump Shrimp Co., among others.
The company grows through deal-making, rather than through organic unit growth. Fertitta’s general strategy involves buying companies when their values are low and then cutting the heck out of costs. He has acquired many of those brands either in fire-sale situations or even out of bankruptcy—such as recent acquisitions of The Palm, Restaurants Unlimited and Houlihan’s.
Individually, his companies have mixed track records of overall performance.
Fertitta’s desire to go public is borne out of a desire to make bigger deals, signaling perhaps that he’s determined to make higher quality acquisitions. “We’ve tried to do some acquisitions in the last six months and have gotten beat out of every one of them by a public company because they can pay a larger multiple,” he told CNBC last month.
The “Billion-Dollar Buyer” initially wanted to take his company public through a traditional IPO process. But the New York Post earlier this month said that it was getting a cold reception on Wall Street, largely because of its $4 billion in debt. Our guess is that the company’s full-service setup is another big question mark.
Fast Acquisition went public last year. In November, co-CEO Doug Jacob resigned and left the company’s board of directors.
By merging with a SPAC, Landry’s would go public through the back door. A SPAC is a shell company that raises money from investors and uses it to make an acquisition. The two companies merge, the shell company takes on the name of the company it acquired and then that company ends up on the public markets. It is comparatively easy to go public that way.
Restaurants that have gone public in this manner include Burger King, now owned by Restaurant Brands International and arguably the industry’s greatest SPAC deal, as well as Del Taco and more recently BurgerFi.
The challenge for SPACs is to get a deal done at all. There are a lot of them operating on Wall Street right now—including at least two additional companies that could target restaurants. Such companies have two years to complete a deal.
As such, many of these shell companies have relatively broad horizons and frequently end up buying companies that fall at least somewhat outside their purview.
It would have been difficult for Fast to make a deal with one of those 20 companies within its narrow timeframe. Landry’s appears to be an opportunistic deal. Investors seem interested. The price of its shares rose 8% on Thursday.
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