Fat Brands still wants to make deals, but it won’t just pay anything.
That, at least, is the message from Andy Wiederhorn, chairman and majority owner of the brand collector, which owns Fazoli’s, Twin Peaks, Fatburger and several other chains.
Wiederhorn said on Thursday that the company still wants to make acquisitions, and is targeting concepts such as “salads, sandwich or coffee brands.”
But he also said that sellers aren’t offering prices that jive with today’s higher interest rate environment. And though Fat Brands was an eager buyer just, say, two years ago, it is not willing to make a deal just for the sake of making a deal. Not these days, anyway.
“We still have not seen sellers come into the range of this reality of the interest rate environment,” Wiederhorn told analysts on Thursday. “Many deals just haven’t met our price tolerance threshold.”
Fat Brands went on an acquisition tear that helped spur 10-fold growth at the company in 2021, when it made nearly $1 billion worth of acquisitions that helped it evolve from a company that made opportunistic deals of low-priced chains into a major buyer of mid-sized concepts.
It did this largely through debt, using securitized financing to buy companies such as Fazoli’s, Twin Peaks and Global Franchise Group, the owner of concepts like Great American Cookies and Hot Dog on a Stick.
It then mostly stopped doing deals as interest rates soared and Fat Brands “digested” its deals. But it did make some of them, notably a recent $30 million acquisition of Smokey Bones, which is being used in part to convert locations to Twin Peaks, a brand it plans to take public sometime this year, likely in the third quarter.
Wiederhorn, who faces a potential SEC lawsuit, said that the company plans to reduce its debt load and thus any deal has to be done without increasing its overall leverage. That can be difficult to do in a restaurant industry that typically feeds off debt.
“We’re trying to be very strategic right now,” he said. “We want to reduce our leverage and pay down debt. So we’re only really looking at things that make sense strategically.”
The Smokey Bones deal, for instance, gave the brand a barbecue concept it could eventually franchise. But it also gave Fat Brands some locations that could be converted into higher-volume Twin Peaks units.
It is also looking for deals to fill a manufacturing facility that it acquired when it bought Global Franchise Group.
Yet it is open, as long as the deals don’t create financial havoc. “We would consider another brand and make an acquisition if it made sense for us,” he said. “The price would have to be right and it would have to be a de-levering event. There are ways to do that.”
For instance, he said, the company could do a stock deal or “sellers notes,” deals in which sellers are paid later and only when the acquisition meets certain targets.
Wiederhorn did hint at a couple of potential deals. “We have two or three long-term, strategic acquisitions that we have been following for some time,” he said. “This year, they may come around as the sellers are ready to make something happen.”
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