HRI Holding Corp, which oversees Houlihan’s Restaurants Inc., filed for Chapter 11 bankruptcy Thursday, although there’s already a familiar bidder in the wings.
Houlihan’s executed an asset purchase agreement with Landry’s Inc., the company announced with the news. Tilman Fertitta’s restaurant empire is serving as the “stalking horse bidder” to acquire “substantially all of the company’s assets.” Higher offers can still come in. Landry’s bid $40 million, which sets the floor of the auction and includes the assumption of certain liabilities.
“We expect the process to be seamless for our guests, team members and vendors and look forward to continuing to provide our guests with the same great experience they expect when they dine with us,” said Mike Archer, chief executive officer, HRI, Inc., in a statement.
“Our brands continue to outperform competitors in sales and traffic and our profitability is improving across the Company. This transaction provides us the opportunity to advance these successes and focus on our growth going forward,” he added.
Archer, a former Applebee’s, TGI Fridays, and Morton’s president, teamed with private-equity firm York Capital Management to buy Houlihan’s and its affiliated concepts in November 2015. They purchased the company from Goldner Hawn Johnson & Morrison for an undisclosed amount. Archer assumed the CEO role from Bob Hartnett.
Houlihan’s started in 1972 and is considered a big-brother brand to Applebee’s founding in 1980. It’s changed hands several times over the decades, including long runs from Gilbert/Robinson and W.R. Grace and briefly Dennis Reese. The chain shifted direction from casual to polished as it tried to regain footing.
The sale transaction will be executed through an open, court-supervised sale process. HRI said it wants to move quickly, and expects to close the deal before 2020.
HRI Holding Corp. owns and operates 47 restaurants in 14 states (34 under Houlihan’s branding). The company also franchises 23 units, which were not included in the bankruptcy.
According to the company’s filing in the U.S. Bankruptcy Court for the District of Delaware, it reported $202 million in revenue for fiscal 2019 and employs about 3,450 people. While the company owns 100 percent of Houlihan’s Restaurants Inc., the organization structure includes 39 separate entities that are 93.4 percent owned by affiliates of York Capital Management.
HRI’s consolidated outstanding liabilities total $76.9 million. Its assets are $79.8 million.
The biggest unsecured claim belongs to US Foods Inc. at $959,447.
According to court documents, the company filed for bankruptcy after closing 12 unprofitable locations.
HRI owes roughly $47 million on a loan from December 2015 and has not made a debt or principal payment since December 2018. It has targeted a sale since June to satisfy its debt burden, with the loan coming due in December 2020.
The company’s portfolio includes five concepts: Houlihan’s, J. Gilbert’s, Bristol Seafood Grill, Make Room for Truman, and Devon Seafood Grill.
HRI said it “received new financing commitments that will provide sufficient liquidity to fund the business,” and keep restaurants operating through the closing of the sale. Franchise restaurants will continue to operate independently and are not included in the sale or Chapter 11.
Landry’s has built its company on these types of deals, especially with stalking horse bids. Being first to the auction block has its perks. In addition to being the minimum bid, stalking horse companies often get compensation for any costs related to its sale efforts if a higher offer comes in.
In September, Landry’s, which has more than 500 restaurants globally, picked up Del Frisco’s Double Eagle Steakhouse and Del Frisco’s Grille for undisclosed consideration as the company was sold to L Catterton. It also won the right to acquire Restaurants Unlimited for $37 million out of bankruptcy this year.
Previously, 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.
Additionally, 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.