Dive Brief:

• Fat Brands has agreed to acquire Global Franchise Group, owner of QSR brands Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble Slab Creamery and Pretzelmaker, for $442.5 million from Serruya Private Equity and Lion Capital, according to a press release. 
• The transaction will be made in cash and stock with the cash portion funded from the issuance of a new series of notes and cash on hand. Fat Brands will also issue the sellers $25 million in common stock and $67.5 million in Series B cumulative preferred stock. The deal is expected to close by the end of July. 
• With this acquisition, Fat Brands will have more than 2,000 franchised and company-owned restaurants around the world with combined annual system-wide sales of approximately $1.4 billion. This company bought Johnny Rockets for $25 million in August 2020. 

Dive Insight:

Fat Brands has been on an acquisition tear since it became public, buying four different companies — Hurricane Grill & Wings, Yalla Mediterranean, Elevation Burger and Johnny Rockets — in the last four years. But this latest deal will more than double Fat's systemwide sales, which rose to over $700 million after its purchase of Johnny Rockets. 

"This acquisition is a key strategic milestone for Fat Brands. We have been very acquisitive in recent years, seeking to add strong and growing restaurant brands to our portfolio," Andy Wiederhorn, President and CEO of Fat Brands, said in the press release. "The five new restaurant concepts have been very resilient coming out of the pandemic and will complement our existing brands."

Fat can expand Global Franchise Group's restaurants via existing franchisees or through its burgeoning network of ghost kitchens. The company is already plotting to grow Johnny Rockets through ghost kitchens, for example. This most recent acquisition will also include GFG's manufacturing operations, which Wiederhorn said will create better efficiencies and incremental revenue opportunities. 

Fat has been raising capital to fund acquisitions, Wiederhorn said during the company's Q1 2021 earnings call. It also merged with the company's controlling stockholder Fog Cutter Capital Group last year in a deal that will help it buy more companies.

There could be more acquisitions in the pipeline this year as the company was looking at nine or 10 different targets as of Q1, and Wiederhorn said he expected another acquisition or two by the end of 2021. 

"Private equity is definitely active. They're definitely active[ly] selling," he said during the Q1 call. "They're also buying … I've seen some competition on some deals."

Company founders, however, have been more difficult sellers, leaning heavily on 2019 valuations and government relief funds to clean up balance sheets before they consider selling, he said.

Wiederhorn said Fat is looking at casual and fast casual acquisition targets, but isn't seeking out ethnic brands. He argues these concepts can be more difficult to manage since cuisines like sushi or Korean barbecue require a higher skill set and can be complex to franchise.

"I think that you'll see the scale of Fat Brands grow significantly, not just moderately during the coming couple of quarters, and that will really help us grow into what this platform was built for in the first place, which is to acquire brands and to cross-sell those brands to our base of franchisees and to get scale in purchasing and pass that through to our franchisees in terms of lower food costs and things like that," Wiederhorn said during the Q1 call. "So I really feel like we're well positioned to just kill it in the second half of this year."