Dive Brief:
- Fat Brands has agreed to acquire Fazoli's, an Italian QSR chain, for $130 million from funds managed by Sentinel Capital Partners, the company announced Tuesday.
- The acquisition, which is expected to close by mid-December, will be funded with cash from issuance of new notes from Fat's securitization facilities.
- Fat has been very acquisitive during the past 15 months, buying Johnny Rockets in 2020 for $25 million, followed by five-branded Global Franchise Group in June for $442.5 million and Twin Peaks in September for $300 million. With the addition of Fazoli's, Fat has now spent nearly $900 million in acquisitions during this period, largely funded by securitization facilities and Series B stock issuance.
Dive Insight:
Fat is hungry for brand that are in multiple markets and have multiple franchisees, and Fazoli's fits the bill — especially with its extensive development pipeline.
Fazoli's expects its fiscal year 2022, which began in April, to reach a historical development goal, according to a press release. During fiscal year 2021, the Italian chain signed 20 franchise agreements to develop 50 new locations. As of July, the company anticipated signing 40 new franchisees for 100 locations, doubling its 2021 levels.
The QSR chain will add 200 units to Fat's portfolio, along with a development pipeline of 100 units over the next few years, bringing Fat's total units to 2,300 globally. Fazoli's is also expected to increase the company's post-COVID-19 normalized EBITDA by $14.5 million to $15 million in 2021, and push the company's systemwide sales to over $2.1 billion.
Fazoli's cuisine type isn't a coincidence, either — Fat has been looking for an Italian brand to bring under its company umbrella.
"We have been eyeing this category for some time; however, we were waiting for the right brand — one that is high-growth, with almost all restaurants having drive-thru access, in addition to, the synergies that we will achieve adding Fazoli's to our portfolio of brands," Fat Brands CEO Andy Wiederhorn said in the press release.
Fazoli's has driven strong sales, reporting sales growth of 27.6% in July and a traffic increase of 14% compared to 2019, and reaching double-digit, month-over-month sales growth for 14 consecutive months, according to a press release. The company has also been testing an artificial intelligence ordering system across several locations that has led to increased speed of service and better accuracy for carryout. Fazoli's plans to add the technology to the drive-thru in Q1 2022. This tech could also be used across Fat's portfolio to boost its off-premise channels.
Transactions have been a pivotal part of Fat's growth strategy, and the company now has 15 brands in its network. These purchases have brought new business opportunities as well — its acquisition of Global Franchise Group, which provided five QSR brands, led Fat to launch its QSR division, Wiederhorn said during the company’s Q2 2021 earnings call. The addition of GFG also created strategic opportunities, such as building up these brands' e-commerce capabilities, capturing third-party delivery for Round Table Pizza and expanding manufacturing facility capacity, which only ran about 33% as of August. The company also plans to cross-sell products across the Fat platform.
