Twin Peaks announced earlier in June it will file an IPO, but the company wasn’t breaking news to anyone that had been paying attention. It’s a move FAT Brands chairman Andy Wiederhorn foreshadowed since January.
But the chain hasn’t filed with the SEC yet and won’t do so for another six months. So why unveil it this far in advance? That’s because FAT Brands continues to field questions concerning its long-term plan to reduce debt, and the announcement shows investors there’s a plan in place. Wiederhorn believes taking the sports bar public will bring the best value—look no further than what transpired with CAVA. The Mediterranean fast casual recently priced its IPO at $22 and raised $318 million. On the first day of trading, it reached as high as $47.89 per share.
“We wanted investors to do the work and look through the financials to understand how much value there is and help guide them a little bit on here’s what other IPOs are getting valued at,” Wiederhorn says. “And if Twin Peaks has better unit economics and is more profitable and is almost all franchised versus CAVA, then we should get an even higher valuation. But even if you’re super conservative, it’s a big number and that was the reason of announcing it.”
The industry veteran adds Twin Peaks has a “really good IPO story.” The company was purchased by FAT Brands for $300 million in 2021. Since, the brand’s unit count has grown by 40 percent and recently surpassed 100 stores systemwide. There’s also more than 109 franchised restaurants in the pipeline, let alone corporate units. Wiederorn says Twin Peaks has 20 percent annual expansion locked in for the next five years, putting it at more than 200 locations.
FAT Brands would likely sell part of Twin Peaks in an IPO and retain majority ownership. The proceeds would then be used to reduce debt and build more company-owned locations.
“We want to reduce our leverage at the holding company level,” Wiederhorn explains. “The interest rate environment, it was much higher than any of us expected two years ago. And so it seems better to pay down that than to refinance that given the rate environment. And doing an IPO and raising some proceeds from a partial sale of Twin Peaks through the IPO or some other way is probably the best way to do that.”
Meanwhile, FAT Brands is still considering selling off its burger brands or another one of its larger concepts, like Round Table Pizza. But Twin Peaks makes the most sense because it never fully integrated with the parent company. All of the other 16 concepts under FAT Brands umbrella have the same back office, accounting, legal, and purchasing services for synergy purposes. And there are several reasons for Twin Peaks’ special treatment. To start, the sports bar was kept separate because FAT Brands knew it wanted to go down this road when it made the acquisition. Secondly, the business is so different than its sister chains, mostly because of its 40 percent alcohol mix.
“We knew we could put our weight behind them and help them with things like financially dealing with capital raising to build company-owned stores or to help them with purchasing power where we have huge purchasing power compared to that brand on a stand-alone basis,” Wiederhorn says.
“We really got comfortable as part of the diligence process that they knew how to run their business, that we could leave the management team alone to run their business, and we could lean into it and really give them some help just from our muscle for the things that they needed it without having to micromanage their business,” he adds.
Shooting for an IPO is one of a few ways FAT Brands plans to cut debt. The simplest way is through organic growth. The company, equipped with roughly 2,300 stores, has a 1,000-unit pipeline that should grow EBITDA from $90 million to $150 million. Another option is building capacity in its cookie dough and pretzel mix factory in Atlanta. The facility brought in $33.5 million in sales last year and added $15 million in EBITDA. However, the factory was only operating at one-third of full capacity at the start of 2023. To increase utilization, FAT Brands is looking to become a third-party manufacturer for other companies. It could also acquire more snack chains that would use the factory. For right now, the company implemented cookies across its other restaurants to soak up some of the excess capacity.
In January, Wiederhorn told QSR that if the factory were to reach 70 percent capacity, that $15 million could increase to $30 million to $35 million, which would allow FAT Brands to sell the factory for around $400 million. That would wipe away almost half of the company’s debt.
Wiederhorn also said FAT Brands will listen to offers for Twin Peaks and may even purchase another concept for the sole purpose of converting those stores into Twin Peaks. The idea would be to help the brand grow faster and increase in value, similar to what CAVA did with Zoes Kitchen.
The chairman sees an active M&A market—a lot more than what he’s seen in the past 12 months. But Wiederhorn feels prices are still higher than they should be given where interest rates are now and where they’re expected to be for a while. So he doesn’t think sellers are as reasonable as they need to be. He believes buyers are saying to themselves, “OK, it’s a new paradigm, but I’m willing to step up here and make some deals if the price is right.”
Whatever FAT Brands does, it wants to be strategic.
“If it was another brand that could convert into Twin Peaks locations, that’s interesting,” Wiederhorn says. “If it’s another brand that gives us more manufacturing business at our cookie dough factory, that’s interesting. If it’s just buying a brand for the sake of buying a brand, I don’t know that we need to. We already have 17 brands. We have a very big pipeline of stores to build. So it has to be a really compelling and strategic argument or financial argument as to why we should buy just an ordinary brand versus a strategic brand.”