Tilted Kilt and its retracting unit count are being sold for $10. ARC Group, Inc., a restaurant holding company that owns 26-unit Dick’s Wings & Grill, outlined its plans to acquire the brand this week after first announcing the deal in June.
When first revealed, SDA Holdings, LLC, a company owned by ARC Group board member Fred W. Alexander, and the owners of Tilted Kilt, said they fully executed all of the agreements for the sale to SDA Holdings. It planned to use funds loaned by Seenu G. Kasturi, ARC Group’s president and chief financial officer, to satisfy payment obligations under the agreements to hold the franchise until ARC Group obtained suitable financing to acquire Tilted Kilt.
In other terms: SDA Holdings said it would buy and then hold Tilted Kilt until ARC Group could purchase it.
On November 6, ARC Group said it would acquire all of the assets of Tilted Kilt from SDA Holdings for $10. But part of the transaction includes assuming debt of about $1.8 million, and also assumes future payment obligations of about $1.5 million. ARC Group will issue about 1.4 million shares of common stock as well.
Tilted Kilt generated nearly $14 million in revenue during 2017. The closing is expected to take place by year’s end.
Tilted Kilt is down to 34 restaurants in the U.S., with eight additional units subject to franchise agreements. The footprint spreads across 17 states, including New York, New Jersey, Pennsylvania, Nevada, California, and Texas.
It’s been a rapid drop. The brand went from about 80 stores to 51 last year, and had more than 60 last November when the chain unveiled a new catering program, off-premises program, and menu for the coming year. In May, Tilted Kilt said it was making burgers the star of its latest menu change. By that time the store count had fallen to 47.
In 2016, average-unit volumes dropped about 4 percent to $40,000 per week, compared with $43,000–$44,000 a couple of years earlier.
Founded in the Las Vegas Rio Hotel and Casino in 2003, Tilted Kilt debuted a new store prototype on the southwest corner of Warner Road and Priest Drive in Tempe, Arizona, in August 2016. The following year it defined two fresh models, including a smaller 4,800-square-foot unit.
Kasturi said Tilted Kilt aligns with the company’s strategy of targeting “undervalued/underperforming restaurant chains with immediate cash flow potential, where we have the ability to leverage our franchising, marketing, operational, logistics and financial expertise across brands, while maintaining a strict focus on driving sales, reducing costs, and expanding margins.”
The purchase will boost Arc Group’s combined annualized revenue run rate to in excess of $25 million. And it’s likely not the last purchase for the company.
“We look forward to acquiring similar restaurant chains at attractive multiples that are either growing and profitable, or can be turned around quickly and will add to both our top and bottom line,” Kasturi added.
“Tilted Kilt will be a strong addition to our platform and a brand for which we believe we can make a significant impact in its top and bottom line growth,” added Richard Akam, CEO of ARC Group.
Akam said, from 2013–2017, the company improved the average-unit volume of its Dick’s Wings & Grill restaurants from $699,000 to $966,000. During the same period, ARC Group expanded the chain from 15 to 22 units and systemwide sales increased from $10 million to $22 million. “We look forward to replicating this success with Tilted Kilt,” he said. There are four company-run stores, three concession stands, and 19 franchises.
ARC Group generated about $4.4 million of revenue and $340,00 of net income in 2017. It’s other purchase recently was a $12.3 million August deal for Fat Patty’s. The chain has four restaurants in West Virginia and Kentucky that generated more than $11 million in revenue and $700,00 in net income last year.