David Fox

There will be 21 North Italia locations when the deal closes.

Cheesecake Factory to Buy Fox Restaurant Concepts, North Italia for $308M

The deal is expected to close toward the end of the third quarter.

The integration process was going so smoothly The Cheesecake Factory decided to buy the entire company. The polished casual leader announced Wednesday afternoon it has entered into definitive agreements to acquire Fox Restaurant Concepts and the remaining interest in North Italia, “reinforcing its leadership position in experiential dining,” the company said.

The transactions will be completed for $308 million in cash at closing, with an additional $45 million due ratably over the next four years. The Cheesecake Factory previously invested $88 million in North Italia and Flower Child over the last three years in anticipation of this purchase.

Broken down, The Cheesecake Factory will spend $130 million in cash for the remaining interest in 20-unit North Italia (there will be 21 stores at close). That brings total consideration to roughly $174 million, including $44 million previously invested.


Why North Italia can be The Cheesecake Factory's true growth brand

North Italia boasts average-unit volumes of about $7 million. Annualized run-rate revenues are expected to be in the $150 million range when the transaction finishes.

As for the rest of the deal, Fox Restaurant Concepts, founded by Sam Fox, a 10-time James Beard Award semifinalist for restaurateur of the year, currently operates 45 restaurants across seven states and Washington, D.C. Run-rate revenues will be $250 million at close. The Cheesecake Factory is forking up about $178 million in cash at closing for the restaurants. In addition, the aforementioned $45 million due ratably over the next four years. Before the performance-driven earn-out provision, the total consideration will be $267 million including $44 million the company previously invested in fast casual Flower Child.

The deal is expected to close toward the end of the third quarter of fiscal 2019.

Following completion of the purchase, North Italia’s operations will be located at The Cheesecake Factory’s corporate headquarters in Calabasas Hills, California. The company said the move would help North Italia scale nationally.

Since its initial investment in 2016, The Cheesecake Factory has worked closely with North Italia’s operations and leadership team to construct a comprehensive integration plan, the company said.

Fox Restaurant Concepts, however, will operate as a wholly-owned subsidiary, and continue to be led by Fox from the company’s Phoenix headquarters.

Fox opened Wildflower in Tucson, Arizona, in 1998, and has introduced dozens of brands since, including Flower Child, Culinary Dropout, Blanco, and The Henry. The company has grown to a team of more than 5,000 employees across 60-plus locations, including North Italia.

“Since making our initial minority investments in North Italia and Flower Child in 2016, we have not only helped fuel the growth of both brands, but also developed a deep relationship with Sam Fox at Fox Restaurant Concepts,” said David Overton, chairman and chief executive officer of The Cheesecake Factory Incorporated, in a statement. “We realized the true potential of this relationship as we worked through the integration process for our planned acquisition of North Italia. It became evident that the combination of two of the most experiential and entrepreneurial restaurant companies could drive greater value as one organization.”

Fox called the partnership “the first of its kind for the restaurant industry.”

Combined, The Cheesecake Factory expects to have nearly $3 billion in pro forma 2020 revenues and anticipated 8 percent-plus revenue growth, comprised of targeted same-store sales gains of 1–2 percent and, notably, 6–7 percent unit growth.

The chain reported total revenues of $602.6 million in the second quarter of fiscal 2019, announced Wednesday, compared to $587.3 million in the year-ago period. Net income was $35.5 million. Same-store sales climbed 1 percent, year-over-year, at The Cheesecake Factory

“With diversified concepts, meaningful unit growth drivers, significant scale, robust cash flow generation and a strong balance sheet, the combined company is anticipated to be uniquely positioned to drive long-term profitable growth in today’s restaurant industry,” the company said.

Added Fox in a statement: “David Overton and I quickly realized the magic occurring between our organizations while we worked through North Italia’s integration. With our aligned cultures and philosophies, The Cheesecake Factory is the right partner to embrace our creative spirit, enabling us to innovate concepts, while providing the infrastructure and capital to scale.”

The Cheesecake Factory said the cash due at closing will be funded by drawing on its upsized credit facility, as well as cash on hand. The deal also includes an earn-out provision based on the financial performance of the Fox Restaurant Concept brands outside of North Italia and Flower Child.

The company said it structured the deals to diversify operations and capitalize on its scale and infrastructure, maximize cash-flow generation, and maintain the respective teams’ focus on their core businesses. The Cheesecake Factory intends to capture supply chain, real estate, and additional synergies over time. Excluding integration expenses, the transactions are expected to be neutral to earnings per share in fiscal 2020 and accretive thereafter, the company said.

Additionally, The Cheesecake Factory plans to maintain a balanced capital allocation strategy, investing in new restaurants that are expected to meet the company’s targeted returns, repaying borrowings under its credit facility and continuing the dividend and share repurchase program.