Four years ago, Fat Brands was known primarily for its flagship brand, Fatburger, before the company picked up several chains in 2018 and 2019, bolstering its burger business with Elevation Burger and getting into the wings vertical with the acquisition of Hurricane Grill & Wings. These days, Fat Brands is making heads spin with seemingly a new brand acquisition every month.
With four purchases either underway or completed over the past five months (including Global Franchise Group, Twin Peaks, Fazoli’s and, most recently, Native Grill & Wings), Fat Brands — helmed by CEO Andy Wiederhorn — has gained a reputation in 2021 for its aggressive acquisitive strategy. But will Fat Brands come out of this post-pandemic buying spree as the multi-concept company to beat, or is it adding brands too quickly to add value to its portfolio?
Photo: Fat Brands CEO Andy Wiederhorn
“We want to grow the brands that we already have,” Andy Wiederhorn told Nation’s Restaurant News. “Then we'll continue to acquire strategically if we can find interesting acquisitions that are either easy to onboard to our platform … or alternatively, if we find a brand that has high growth opportunities, like Twin Peaks, then we're going to leave the management team separate and let them run it, because we don't want to mess up the growth momentum of the high-growth brands.”
The new era for Fat Brands began last September when the company acquired casual-dining chain Johnny Rockets from Sun Capital Partners with the intention of bringing the brand back to its ’50s diner roots. The Johnny Rockets deal was an example of integrating a brand into the pre-existing Fat Brands corporate structure, as Wiederhorn replaced former CEO George Michel as head of the brand.
Fat Brands’ purchasing spree in 2021 began in June with the announcement of the company’s intention to acquire Global Franchise Group, which includes Round Table Pizza and food court brands Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker. Next, in October, came the $300 million purchase of Hooters-esque sports bar chain Twin Peaks, Fat Brands’ first foray into what it is calling “polished casual” dining. Almost immediately following that, in November, Fat Brands acquired Italian quick-service chain Fazoli’s. Rounding out the year, Fat Brands announced on Nov. 22 its intention to acquire regional 20-plus-unit Arizona chain Native Grill & Wings, which will become the third wings concept in the Fat Brands portfolio.
When the Native Grill & Wings deal is finalized, Fat Brands will oversee 2,300 franchised and corporate-owned stores globally with a combined annual system-wide sales of about $2.3 billion, bringing the company just shy of the top 20 restaurants in terms of unit size (below Popeyes and above Panda Express, according to the NRN Top 500).
Although these announcements might seem like a whirlwind of news, Wiederhorn said that the aggressive moves match the company’s overarching strategy, which is to focus more on expansion and less on how well these brands will mesh.
“We want to let those management teams focus on growth, not on synergy right now,” Wiederhorn said. “That made the integration of these acquisitions easier because we weren't trying to take three different large companies and put them all together in the same six-month period of time.”
However, Fat Brands is not just going on a shopping spree and saying “yes” to every acquisitive opportunity that comes knocking on its door. Wiederhorn said that his team has turned down “probably 10 times the number of deals we’ve done,” and has specifically not looked into fine-dining concepts, global cuisines that require more skill in the kitchen, coffee or sandwich brands.
While some might question the rapid-fire pace of deals coming from Fat Brands — will the fast growth disrupt any kind of cohesion among the brands? — others say the time is right for the strategy.
Darren Tristano, CEO of FoodServiceResults and restaurant industry analyst, said that for brands looking to go public or attract investor interest, it’s a good economic atmosphere to buy now, build capital and ask questions later. He added that at this point in the pandemic, the odds of gaining access to capital are higher as companies are still scrambling to recover from the COVID-19-related health and economic crises, and the more Wiederhorn buys, the more leverage he could have as a rapidly growing company.
“Fat Brands is an opportunistic entrepreneurial organization,” Tristano told Nation’s Restaurant News. “They are taking advantage of market conditions to acquire brands that are either struggling or were ready to be moved into another organization. And because of that, they've had a good opportunity to bring these brands together under one roof.”
Brands do not have to synergize well together to share resources like management teams, supply chain, advertisement and overhead expenses. In that way, Fat Brands can save money over time and start making moves to expand these recently acquired brands to new markets.
“You can make changes very quickly and move brands into a much stronger financial position very quickly,” Tristano said.
Another financial advantage is Fat Brands’ position as a franchisor. Since many of the stores being onboarded into the Fat Brands family are franchised, costs are lower and it creates more opportunities for franchisees to open other Fat Brands restaurants or cobrand, Tristano said.
But when you buy up smaller companies, or ones that have seen better days, you’re also acquiring their debt, which is where the risk to Fat Brands’ strategy comes in. According to Roger Lipton, financial analyst and advisor to Fat Brands, the company is betting on receiving more of a cash return from the companies it acquires than it is paying interest on the debt racking up, which Lipton estimates is close to $744 million.
To deal with the growing debt, Lipton said, Fat Brands might choose to off-load one or multiple brands in the future — in other words, buy now, ask questions (and sell) later.
“Selling [one of these brands] is an option that’s always available, but on the other hand, you don't want to sell off an asset that has huge growth possibilities in the near term either,” Lipton said. “You’re always evaluating the risk and reward of what you have.”
The flurry of activity from Fat Brands could also attract an activist investor sometime soon. But don’t expect Fat Brands to settle down just yet. Wiederhorn has indicated interest in more pizza or polished casual brands to strengthen his hold in those verticals.
“We need to make acquisitions that make sense,” Wiederhorn said. “You’re going to see us continue to get bigger. We’re just getting started in terms of our scale. … I expect in five years that you’ll see us in the top 10 restaurants, in terms of number of units.”
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