The Cheesecake Factory announced Monday that it has reached a $200 million investment deal with private firm Roark Capital.
As part of the deal, the brand sold 200,000 shares of convertible preferred stock to Roark Capital affiliate RC Cake Holdings. As a preferred shareholder, Roark has priority over common shareholders when it comes to payouts. However, the company is required to vote in agreement with board recommendations.
The investment firm is unable to effect “a tender offer, merger or acquisition of the [The Cheesecake Factory]” until after three years or when its ownership represents less than 5 percent of outstanding common shares, according to the agreement.
Roark can convert its preferred shares into common shares at $22.23 per share, but the conversion can result in no more than 19.9 percent of outstanding common stock.
Additionally, as long as Roark has ownership that represents at least 5 percent of outstanding stock, then it will have “reasonable right to consult from time to time with the officers of the Company regarding operating and financial matters of the [Cheesecake Factory].”
The Cheesecake Factory will use the proceeds for “working capital, expenses incurred in connection with the transaction, and other general corporate purposes.”
“We are pleased to have found a high-quality partner in Roark, who we are confident will add significant value to The Cheesecake Factory Incorporated,” said CEO David Overton in a statement. “This transaction not only meaningfully enhances our liquidity position to navigate the near-term COVID-19 landscape and get our affected staff members back to work as soon as practicable, but also importantly, solidifies our ability to manage the business for the long-term for all of our stakeholders once we emerge on the other side of this crisis. Moreover, Roark’s investment underscores the strength of our brands, market positioning and long-term growth prospects.”
Since it was formed, Roark has invested in 76 franchise and multi-unit brands and has generated $41 billion. The firm’s portfolio includes Inspire Brands, Focus Brands, and CKE Restaurants. That covers restaurants such as Buffalo Wild Wings, Sonic Drive-In, Arby’s, Jimmy John’s, Cinnabon, Moe’s Southwestern Grill, Auntie Anne’s, Hardee’s, and Carl’s Jr.
The Cheesecake Factory’s board will expand to nine members, with Roark President Paul Ginsberg joining as an independent member.
“We believe The Cheesecake Factory, North Italia and the FRC brands are uniquely positioned to maintain their leadership in experiential dining and look forward to a partnership with the board and management team to drive long-term value for all shareholders,” Ginsberg said in a statement.
The company said earlier in April that 30 units, including three Cheesecake Factory restaurants, were temporarily closed. The Cheesecake Factory saw a 46-percent drop in same-store sales in March and expects same-store sales in Q1 to decrease 13 percent year-over-year. At the time, the brand also noted that off-premises sales have risen 85 percent since Q4. On an annualized basis, the off-premises sales would equal $3 million in average unit volume, according to the company.
The Cheesecake Factory furloughed 41,000 workers in March and said it would not pay rent in April. Overton took a 20-percent pay cut and board members reduced their compensation by 20 percent. Corporate workers and bakery administration had their pay cut between 10 percent and 20 percent, as well.
The company operates 294 units across the U.S. and Canada. That includes North Italia and Fox Restaurant Concepts, which it bought for north of $350 million this past summer.