A “long and thorough” process for Ignite Restaurant Group is one step closer to a conclusion. The struggling parent company of Joe’s Crab Shack and Brick House Tavern + Tap announced Tuesday it has entered into an agreement with an affiliate of San Diego-based private equity firm Kelly Companies to sell both brands in a cash bid offer.
The price: Around $50 million, according to a court filing.
As of April 3, there were 112 Joe’s Crab Shacks and 25 Brick House units. In 2016, the company closed 18 Joe’s and one Brick House.
“Today’s sale agreement represents the culmination of a long and thorough process, and is an important step in positioning Joe’s and Brick House for future growth and success,” CEO Jonathan Tibus says in a statement.
Ignite’s same-store sales dropped 14.3 percent at Joe’s and 12.6 percent at Brick House in the first quarter versus the prior year. In March, the company was delisted from the Nasdaq Stock Market. It was quickly becoming clear that Ignite wasn’t tracking in a sustainable direction, and the company knew it. In May, Ignite said, “It is possible that even a successful implementation of one of the strategic alternatives that we are pursuing will require us to make a filing for protection under Chapter 11 of the U.S. Bankruptcy Code.”
Tuesday’s announcement came with the news that Ignite and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas.
“Pursuant to Section 363 of the Bankruptcy Code, Ignite also will be filing a motion for the implementation of bidding procedures to allow other companies the opportunity to submit bids through a court-supervised process to purchase the assets being sold. Ignite anticipates the sale transaction, which is subject to customary closing conditions, will be completed within 60 to 90 days. Piper Jaffray & Co is being retained to conduct a sale process under the bid procedures, pursuant to which Piper Jaffray will seek higher or better offers from prospective bidders interested in purchasing the business as a whole or any of its component parts,” Ignite added in the release.
Meaning that other companies would be able to submit bids for Joe’s Crab Shack and Brick House during the process. Court filings showed that Ignite has debt totaling $197 million—exceeding its reported assets valued at $153 million.
During this process, Joe’s Crab Shack and Brick House will remain open and operating, Ignite says. Kelly Companies, formed in 1993, operates more than 100 restaurants in 22 states, including Champps, Coyote Canyon, King’s, Montana Mike’s, Sirloin Stockade, Baileys and Grady’s BBQ, and Fox & Hound.
Michael Kelly, CEO of KRG Acquisitions Co., LLC, which is an affiliate of Kelly Companies, says in a statement that he is “excited about acquiring a well-known national brand such as Joe’s Crab Shack and Brick House Tavern + Tap. We look forward to delivering great food and impeccable customer service to the many valued customers of Joe’s and Brick House. KRG believes Joe’s and Brick House will benefit from KRG’s experience in the casual dining industry and its existing operational capabilities.”
Revenues fell 20.9 percent at Joe’s to $76.1 million in the first quarter and Brick House saw its revenue decrease 12.4 percent to $19 million. The company has reported four straight annual loses and experienced changes in its executive leadership. In April, consulting firm Alvarez & Marsal’s managing director, Tibus, who was helping Ignite with its business model, replaced Robert Merritt as CEO.
Foot traffic—an issue for casual dining chains across the country—remains a concern for the company, it stated in its first-quarter release.
“In order to reverse these negative trends, we have deployed many different operational strategies, but so far none have had a meaningful impact on sales or guest traffic. The biggest declines in sales and guest traffic continue to be on weekends. We will continue to evaluate our menu offerings and look for value offerings that could increase sales and traffic as well as improve the value proposition for our guests,” the company said.