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Fat Brands CEO eyes further acquisitions: ‘valuations are down, prices are a little better’ as restaurants look to recover

Andy Wiederhorn, Fat Brands CEO, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Julia La Roche to discuss the company’s $25 million dollar acquisition of Johnny Rockets, future outlook for the company and more.

Video Transcript

BRIAN SOZZI: Andy, congratulations on this deal my mom is a longtime fan of Johnny Rockets. But you know who is also a big fan? It is Warren Buffett, well-known fan of Johnny Rockets. Have you reached out to him about this deal, and do you plan to?

ANDY WIEDERHORN: Not yet.

BRIAN SOZZI: Take us there. Why did you pull the trigger on this one?

ANDY WIEDERHORN: So we've been negotiating to buy Johnny Rockets for several years. We've been interested in the brand. We think it fits really well in our portfolio. The brand was brought for sale officially in January this year. Then it got put on hold, with the pandemic striking in March, and we began discussions again over the summer and led to finishing this deal just a couple days ago.

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It fits really well in our portfolio. Fat Burger, which has always been our flagship brand, has an urban feel to it. Johnny Rockets is a theme build and feel, and then we own Elevation Burger, which is an organic, Australian grass-fed beef brand. So this really gives us a well-rounded portfolio when we're talking to landlords about what's the right fit for a location, and what brand fits best.

JULIA LA ROCHE: Hi, Andy. It's Julia La Roche. So great to be with you. So my first time eating at a Johnny Rockets was during a high school band trip in Atlanta, Georgia at Six Flags, and I've noticed that Johnny Rockets, they're in theme parks. I think there's one at Yankee Stadium. Sometimes they're in shopping centers, whether it's an outlet mall or even a mall, I think I saw one once when I was in a mall in Nashville. So how do you think about the footprint and where you want to be going forward?

ANDY WIEDERHORN: Good question. And everybody has a Johnny Rockets story. Everybody has a Fat Burger story. It's pretty funny when you sit down and talk to people about their burger stories. You know, for us this is a good footprint. Synergy with Fat Burger and our other brands, Hurricane Grill and Wings and Buffalo's Cafe, et cetera, because we don't really have a lot of overlap.

So half of Johnny Rockets is international. They do have a lot in theme parks and malls and things like that, which also makes it different than a Fat Burger footprint, but you always want, as a restaurant operator, to have your restaurant be full. So I think you're going to see restaurants continue to be a little smaller. I know social distancing conflicts with that, but you just don't want an excess capacity. So I think as we move the brand forward, we see a lot of opportunities in other markets that they're not in today for our franchisees to develop the brand at a normalized footprint.

ALEXIS CHRISTOFOROUS: Could you give us an idea of where? I mean, I'm in Manhattan, not right now, but most of the time. We've certainly gone to birthday parties at our neighborhood Johnny Rockets, which by the way, sadly, is closed right now. So are you looking at more cities? Can you give us a feel for geography?

ANDY WIEDERHORN: Well, so we have an existing franchisee platform, we have 170 franchisees today. Now we'll have 300 and something franchisees with the Johnny Rockies team on board. And they're all independent operators. They own one to 10 restaurants each. We have 55 Fat Burgers in Canada, for example. Johnny Rockets only has four in Canada. So there's examples here where we could extend the footprint in markets where there's not a lot of overlap of two different brands, but not a specific example today. I can't say that we're going to add more units in New York or San Francisco or Los Angeles today. It's too soon.

JULIA LA ROCHE: Andy, it's Julia again. I think it's so interesting, you know, just making a deal during a pandemic. I know you had mentioned the top of the conversation it's something that you had been looking at for several months now. How are you thinking about where you want to make deals? Are you still thinking about that in the near term, especially, you know, as we see restaurants struggle, you might even be able to get a pretty decent price here.

ANDY WIEDERHORN: Yeah that's a good question, and timing is everything. We established and completed a big financing vehicle called securitization in March right before the pandemic hit, and that has an accordion feature that gives us the ability to drop additional brands into it. So we're very actively looking at things to acquire today, and I would assume that we make one or two more acquisitions in the coming couple of quarters here.

But you know, the valuations are down. Prices are a little better. But the brands are banged up. Like everything's a little banged up in the restaurant space right now. And it just is what it is. We made this acquisition for the long term. COVID-19 is a short term crisis. It's not going to go on forever. And the restaurant industry is going to survive. It's going to have to take some lumps, and it's painful for everyone, and the government really needs to do another round of PPP, and the payroll tax cuts, and something for the landlords. But it's going to survive. So I think that now is the time to make those deals if you can.

BRIAN SOZZI: And it's not often you see a stock go up 100% over the course of one trading day. Do you think it was too much too soon?

ANDY WIEDERHORN: Well, you know, we've always [INAUDIBLE] stocks undervalued. Everyone says their stocks undervalued. But we've had, you know, pretty small float, pretty small following. So [INAUDIBLE] markets definitely gives us more visibility. I'm sure there was some day trading going on yesterday. There was tremendous volume in that jump in the stock. But you know, in terms of it trading where other franchise orgs trade, you know, in the $7, $8, $9 range is much more where the multiple would be comparable with other franchise companies, if you just look at, you know, a multiple to cash flow.