In Q4 of 2020, which ended in April, FAT Brands CEO Andy Wiederhorn said the multi-concept operator was looking to expand with an established, widely recognized chain. On Thursday, it scooped up iconic diner chain Johnny Rockets for $25 million—FAT Brands’ first acquisition since Elevation Burger in June 2019, but likely far from its last.
Johnny Rockets was founded in 1986 on Melrose Avenue in Los Angeles. Known for its 1950s style décor, it currently boasts roughly 325 locations, nine of which are corporate units.
FAT Brands bought the brand from an affiliate of private-equity firm Sun Capital Partners, Inc. The company will fund the deal through cash on hand and proceeds generated from its securitization facility, it said. It’s expected to close in September 2020 and will widen FAT Brands to more than 700 franchised and company-owned restaurants globally with annual systemwide sales north of $700 million.
Wiederhorn said the company's new purchasing power will increase to more than $250 million per year, which will result in lower food costs and higher profitability for franchisees. Additionally, based on the 2019 performance of both companies, the acquisition of Johnny Rockets is expected to double FAT Brands' annual adjusted EBITDA of $7.7 million.
As evident from that unit figure, the Johnny Rockets deal is a significant grab for FAT Brands in terms of real estate. Today, it franchises about 375 locations worldwide.
“This acquisition is a transformative event for FAT Brands in terms of scale and brand awareness,” Wiederhorn said in a statement. “We see a lot of synergy with Johnny Rockets and our current restaurant concepts and we are eager to take the brand to new heights.”
FAT Brands will own nine brands post-close. Currently, it directs Fatburger, which, like Johnny Rockets, started in L.A., Buffalo’s Express, Buffalo’s Café, Hurricane Grill & Wings, Elevation Burger, Yalla Mediterranean, and Ponderosa and Bonanza Steakhouses.
During the company’s Q4 recap, Wiederhorn noted FAT Brands hoped to complete at least one acquisition in Q1 and two or three by the end of the year. And COVID-19 was opening opportunity.
He explained valuations were showing lower amid the pandemic, meaning FAT Brands was getting more flexibility from potential sellers.
Additionally, FAT Brands mentioned it would look to refranchise restaurants if it picked up a larger company footprint. That won’t be an issue with Johnny Rockets.
Back in January, Johnny Rockets CEO George Michel told FSR the company was embarking on refocused growth in 2020, notably in the nontraditional space. Outlets like casinos, theme parks, airports, and cruise ships—venues that proved lucrative before the pandemic.
Pre-virus, of the 12 store types in Johnny Rockets’ footprint, the highest average-unit volume unit sat at one of its 18 casino franchises. That restaurant topped at $5.743 million, according to a franchise disclosure document. The company’s AUV systemwide (domestic franchises) was $1.228 million.
The casino locations, in total, averaged $2.439 million. In fact, the three highest AUVs in Johnny Rockets’ base were at casinos, airports ($1.483 million) and tourist destinations ($1.338 million). Outlet malls ($1.138 million) and theme parks ($1.134 million) followed.
And just in terms of unit count, malls (31 restaurants with AUVs of $968,981), theme parks (25), outlets (19), and casinos (18) comprised the biggest batch.
Michel, who took over for Mike Nolan the previous August, said, “We don’t see ourselves as being on the street with freestanding restaurants with a drive-thru window.”
Whether or not that changes now is something to follow for FAT Brands.
But one proven element of Johnny Rockets is its international strength. Much of the chain’s 2019 growth occurred overseas. It opened 16 locations outside the U.S. to up its total to 178 in 26 countries. The chain debuted new-market stores in Spain and Oman.
Stateside, Johnny Rockets opened net 10 restaurants in 2016 before retracting by 17 and eight locations, respectively, in the ensuing years.
About half of Johnny Rockets restaurants are counter service. The cooked-to-order brand typically takes 5 to 7 minutes to serve up meals. It doesn’t have microwaves.
Sun Capital acquired Johnny Rockets in 2013 for an undisclosed amount. At the time, the chain had about $300 million in annual revenue. It purchased Johnny Rockets from Red Zone Capital Management, a McLean, Virginia, investment firm co-founded by Daniel Synder, owner of the Washington Football Team (formerly Washington Redskins). Today, Sun Capital also owns Friendly’s and Smokey Bones. It once held Boston Market as well before selling it to Engage Brands in April.
This past year, according to FoodserviceResults, Johnny Rockets collected $220 million in domestic sales—a 3.7 percent year-over-year drop from $228.5 million. The company’s U.S. unit count also declined 3.8 percent to 175 heading into 2020.
FAT Brands’ Elevation Burger deal ran $10 million. The previous August, it purchased Yalla Mediterranean, a Los Angeles-based chain founded in 2014.
That July, the company completed a previously announced acquisition of Hurricane Grill & Wings for $12.5 million. Terms of the Yalla deal were not disclosed. The Hurricane acquisition, which added more than 50 units into the company’s footprint, included $8 million in cash and $4.5 million in preferred stock.
Previously, FAT Brands completed the acquisition of Homestyle Dining LLC, the parent company to the Ponderosa Steakhouse and Bonanza Steakhouse brands, for $10.5 million in November 2017.
As a company, FAT Brands reported total revenues of $3.1 million in Q2, which ended June 28, compared to $5.9 million in the year-ago quarter.
Systemwide same-store sales declined 23.1 percent. It posted a net loss of $4.25 million compared to a net loss of $508,000 in Q2 2019.
Same-store sales increased 44 percent from $3.3 million the week ending May 17 to $4.7 million the week ending July 26. Through the end of July, the company reported 15 new store openings, with plans to open 18 additional stores by year’s end.
"None of us know when the global restaurant business will normalize, but we believe we have the infrastructure and the expertise at FAT Brands to use the immediate future very wisely to integrate the existing Johnny Rockets business, ensuring its benefits from our know-how, even now in the pandemic, and also use this time to refurbish and re-envision this iconic American brand so that it’s positioned for continued growth and profitability," Wiederhorn said.