Multi-concept operator Restaurants Unlimited, which filed for bankruptcy protection in early July, has a high-profile “stalking horse” bidder knocking at the door. Tilman Fertitta, the billionaire who has a history of buying chains out of chapter 11, submitted a $37 million bid for the company, which operates 35 locations across Kincaid’s, Henry’s Tavern, Horatio’s, and 15 other brands.
Being the “stalking horse” means Fertitta’s Landry’s company has the lead bid. If another suitor comes in, they’ll have to outbid the price plus play Landry’s a fee.
Restaurants Unlimited credited “progressive wage laws” as one of the reasons for its bankruptcy filing at the time. The company said rising wages pushed up its annual costs $10.6 million, which resulted in “simple and brutal” math. In filings, chief restructuring officer David Bagley presented the issue as $10.6 million divided by 1,886 part-time hourly employees. That equals $5,623 extra per worker.
All as revenues declined 1 percent from the prior year to $176 million.
Restaurants Unlimited, founded in 1968, was sold 12 years ago to Sun Capital Partners, whose investments include Boston Market, Friendly’s, and Johnny Rockets. The company’s lead petition noted between 200–1,000 creditors, estimated assets between $50 million and $100 million, and estimated liabilities between $50 million and $100 million.
The chain reported $39 million in secured debt and closed six locations before declaring bankruptcy. Landry’s bid doesn’t quite cover the debt. But that’s assuming the price doesn’t go higher during the auction process if other parties join in. Restaurants Unlimited’s secured debtors would be paid first in the bankruptcy proceeding.
Included among the largest unsecured creditors is Pacific Seafood Co. of Washington ($935,000 trade debt); Sysco Food Service Portland ($707,000 trade debt); and Sysco Seattle ($606,000 trade debut). Three of the top five unsecured creditors, and six of the top 15, are Sysco affiliates.
As of the petition date, about $37.7 million (plus accrued and unpaid interest of $1.7 million) was outstanding under the prepetition credit agreement. Restaurants Unlimited also owes “various vendors, suppliers, and other unsecured trade creditors,” roughly $7.6 million.
Restaurants Unlimited has searched for a buyer since the fall of 2016 when it engaged investment bankers, but was “unable to consummate a transaction,” the company said in filings.
It believes it will be more attractive to potential owners this time around when it pares down debt. At that point, the company contacted about 69 potential strategic buyers and 213 financial buyers. Of those, 45 executed confidentially agreements and received information.
Fertitta has a history of scooping brands out of court, and buying others at attractive valuations. Landry’s won the bankruptcy court action in July 2017 to assume ownership of Joe’s Crab Shack and Brick House Tavern + Tap. According to bankruptcy filings, Fertitta’s company offered $57 million.
Fertitta picked up Morton’s Restaurants for about $116.6 million in 2011. The previous November, he agreed to acquire McCormick & Schmick’s in a $131.6 million deal. Landry’s bought California-based Claim Jumper out of bankruptcy with a $76.6 million bid in 2010 and then purchased Bubba Gump two weeks later in early November for an undisclosed amount.
That previous April, Landry’s bought the Oceanaire Seafood Room out of bankruptcy for $23.6 million. A month later, Fertitta acquired Landry’s outright in a deal valued at $1.4 billion, ending a nearly two-year-long bid for the restaurant company, which he already had a 55 percent stake in.
More recently, Fertitta’s Landcadia Holdings picked up delivery service Waitr in 2018 for $308 million. He’s also the owner of the Houston Rockets NBA franchise.
Restaurants Unlimited’s full portfolio features: Clinkerdagger, Cutters Crabhouse, Fondi Pizzeria, Henry’s Tavern, Horatio’s; Kincaid’s, Maggie Bluffs, Manzana, Newport Seafood Grill, Palisade, Palomino, Portland City Grill, Portland Seafood Company, Scott’s Bar & Grill, Simon & Seafort’s, Skate’s on the Bay, Stanford’s, and Stanley & Seafort’s.
The company expanded on its wage issues during its July filing, saying “additional state-mandates … will result in an additional extraordinary wage hike in [fiscal year] 2020 in certain locations before all further wage increases are subject to increases in the CPI and the general national trend away from casual dining, led to the need to commence these chapter 11 cases.”
Some markets it broke down: Seattle $9.47 to $16 (a jump of 69 percent; San Francisco $11.05 to $15.59 (41 percent); and Portland $9.25 to $12.50 (35 percent).
The company added, as a large employer in the Seattle metro market, it was one of the first forced to institute wage hikes. In Seattle, smaller employers appreciate a statutory advantage of a lesser minimum wage of $1 or more through 2021. This isn’t available to Restaurants Unlimited, and it led to the aforementioned annual wage expense bump of an aggregate $10.6 million through fiscal year 2019.
Restaurants Unlimited also made an “ill-advised decision” to open two new restaurants in the second half of 2017 at a cost of $10 million, in Bellevue and Seattle, Washington. It spent the discretionary capital after the company was in default of a prepetition credit agreement. These new restaurants experienced significant operating losses from the outset, and Restaurants Unlimited was forced to close six unprofitable restaurants, the company said.