This story is part of “Post-Close: An Inside Look at Franchise M&A Outcomes,” a digital series in which Franchise Times revisits past Dealmakers winners to explore how they’re putting investment dollars to work, if integration of that acquisition is going as planned and what they’ve learned in the process.
When FAT Brands acquired sports bar chain Twin Peaks and fast-casual Italian restaurant eatery Fazoli’s within a couple months of one another in 2021, then-CEO Andy Wiederhorn was on a mission to diversify the platform company’s portfolio.
Much has changed since then.
Twins Peaks produced the highest average unit volumes in 2023 from among FAT’s concepts and is positioned for a potential initial public offering, while Fazoli’s is working to get back in growth mode.
Wiederhorn, meanwhile, was charged in May with a number of federal offenses, including alleged involvement in an elaborate false loan scheme at FAT Brands. The U.S. Department of Justice also charged FAT Brands in connection with the improper loans. Wiederhorn stepped down as CEO last year amid the government’s investigations; he remains chairman of the board.
FAT Brands Chairman Andy Wiederhorn says Twin Peaks is “firing on all cylinders.”
“Twins Peaks is firing on all cylinders and Fazoli’s has experienced some unforeseen challenges that were really out of our control” with rising food costs and high interest rates, said Wiederhorn, just days before the indictments against him and others were handed down in May. “All in all, we’re very pleased with how those two brands are performing.”
When FAT Brands bought Twins Peaks for $300 million from Garnett Station Partners, the brand had about 80 units in 25 states. The sports bar chain, which is known for wall-to-wall TVs, draft beers served at 29 degrees and the all-female staff’s revealing uniforms, has grown to 111 restaurant locations in the United States and Mexico.
Fazoli’s, a 33-year-old fast casual brand known for its pasta and unlimited signature breadsticks, was acquired by FAT Brands for $130 million from private equity investor Sentinel Capital Partners. At the time of purchase, Fazoli’s had about 200 restaurant locations. It now numbers 204 restaurants across 26 states, including one new store this year. Seven more restaurants are slated to open in 2024.
FAT Brands won a Franchise Times Dealmakers award in 2022 following its buying spree of nine restaurant chains over 18 months in five separate acquisitions for $917.5 million. Its collection of restaurant concepts includes Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Great American Cookies, Smokey Bones and Hot Dog on a Stick, among others. Along with Twins Peaks, FAT Brands confidentially filed to spin off Smokey Bones through a separate IPO.
FAT Brands’ portfolio of 16 brands consists of 2,300 units worldwide with $2.5 billion in global sales. The company said it increased revenue by 43.8 percent in the first quarter of 2024, primarily attributable to the acquisition of Smokey Bones in September 2023, but it also reported a net loss of $38.3 million at that time.
Twin Peaks CEO Joe Hummel says the brand is “unaffected” by legal issues involving its owner, FAT Brands, and that company’s chairman.
Twin Peaks as growth vehicle
Joe Hummel, the CEO of Twin Peaks since 2017, anticipates opening another 14 to 17 stores this year. He said his company’s five-year plan is to double its unit count and grow systemwide sales to $1 billion. Twin Peaks finished 2023 with an estimated $630 million in total sales.
“We still see a lot of white space out there to continue growing in the Sunbelt market with Texas being our home base and plenty of opportunities between Florida and the Carolinas and then venturing into the Mid-Atlantic region up to Pennsylvania and beyond,” Hummel said. “We’re excited also about getting into the Denver market and potentially venturing up into western Canada and possibly” the United Kingdom.
Twin Peaks produces FAT Brands highest AUVs of about $6 million, with some units in Florida posting unit volumes between $9 million and $14 million. It opened three restaurants, in Guadalajara, Mexico, Boardman, Ohio, and Doral, Florida, in the first quarter of 2024.
Hummel, who hit 26 cities, looked at 16 properties and visited nine restaurants during a two-week period in May, pointed to two main catalysts for the brand’s continued success. He said an expanded cocktail menu brings more upscale bourbons and tequilas to the bar, while the introduction of a smaller restaurant prototype—units are typically upwards of 6,000 square feet—makes construction easier and reduces buildout costs.
Hummel insisted Twins Peaks is “unaffected” by the legal issues involving parent company FAT Brands and its chairman.
“We are very siloed and pretty much stand on our own as a company without shared services. Because of that we have been able to operate successfully with the platform above us but really on our own,” said Hummel, who declined to comment on the brand’s anticipated IPO.
FAT Brands anticipates using the proceeds of the Twins Peaks IPO, or any alternative transactions, to “deleverage the balance sheet,” Wiederhorn said during the company’s first quarter earnings call. The company plans to refinance the securitization debt for Twin Peaks prior to an IPO, he said.
FAT’s balance sheet includes more than $1 billion in debt that it accrued acquiring several companies over the past few years including Johnny Rockets, Hot Dog on a Stick and Native Grill & Wings. In June it hired Jordan Chirico as executive vice president and head of debt capital markets to focus on FAT’s balance sheet, including “its $1.2 billion whole business securitization portfolio, additional acquisition financings, preferred stock and other debt related strategies,” the company said in its announcement.
“We paid full price for Twin Peaks because the pipeline was in place and its franchise base was well capitalized with good operators,” Wiederhorn said. “It checked all the boxes for us and we’re very pleased with how that brand is doing.”
Acquired by FAT Brands in 2021, Fazoli’s now has 204 fast-casual Italian restaurants across 26 states.
Fazoli’s faces headwinds
“Fazoli’s really helped us fill out our portfolio of available properties, and that’s been demonstrated by the number of new franchise sales that we’ve been able to put together. Again, like Twin Peaks, it came with a strong management team and good pipeline that we’ve been able to add to,” Wiederhorn said.
Wiederhorn said Fazoli’s has roughly 160 units in the pipeline and anticipated opening nine more restaurants this year. It’s also expanding in Canada after signing a multi-unit deal earlier this year.
Founded in Lexington, Kentucky Fazoli’s is No. 201 on the Franchise Times Top 400 with systemwide sales of $291 million in 2022. The AUV for the Fazoli’s was just under $1.1 million in 2022, according to the company’s latest available franchise disclosure document. The investment range is $800,200 to $1.75 million
“Again, we paid full price for Fazoli’s with the ability to scale and to grow it,” Wiederhorn said.
“The issue for us is Fazoli’s has always been a low-price brand with thinner margins so it definitely feels the inflationary pain more than other fast-casual restaurants, with the costs of food going up, along with wages as more people trade down from full-service to casual and from casual to fast casual and from fast casual to QSR.”
“We’ve seen some softness in sales because of that, but we’re optimistic things will improve by the end of the year when interest rates come down and once inflation cools down,” he said.