FAT Brands Inc. (FAT Quick QuoteFAT - Free Report) has announced the acquisition of the Smokey Bones Bar & Fire Grill restaurant chain from an affiliate of Sun Capital Partners, Inc. The $30 million transaction was financed using the company's existing securitization facilities.

This strategic move represents FAT Brands' debut in the barbecue dining sector, expanding its portfolio of upscale dining chains, including Twin Peaks. This acquisition is expected to boost its annual adjusted EBITDA by approximately $10 million and bring 61 new corporate locations into FAT Brands' portfolio.

The company maintains a cautious and strategic approach to acquisitions, focusing on brands that offer scalability and complement its existing platform. Adding this polished dining brand will give the company's sales team more options to support its franchise partners in expanding their new units.

A robust barbecue player strengthens the polished dining segment, offering more growth avenues for sister brands. The company anticipates generating impressive results, as seen with the successful integration of Johnny Rockets, also acquired from an affiliate of Sun Capital Partners.

Focus on Expansion

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In the past three months, shares of FAT have increased 3.1% in the past three months compared with the industry’s 8.8% fall. The leading global franchising company strategically acquires, markets, and develops fast casual, quick-service, casual dining, and polished casual dining concepts worldwide. The company owns 17 restaurant brands and franchises more than 2,300 units globally.

The company is focused on its organic growth strategy. During second-quarter 2023, FAT opened 25 new units, bringing its year-to-date openings to 66 locations.

For third-quarter 2023, FAT anticipates opening more than 35 units, with 15 already in operation. Looking at the full year, the company is on track to launch 175 new units, marking a 25% increase compared to 2022. This robust growth is driven by the high demand for its brands in the market.

FAT has been proactive in signing franchise development agreements for over 150 new locations, so far this year. This brings its pipeline to more than 1,100 signed agreements for new units set to open in the next few years. This anticipated organic growth is estimated to contribute approximately $60 million in incremental adjusted EBITDA, bringing the total adjusted EBITDA to around $150 million and naturally improving the company's balance sheet.

Zacks Rank & Key Picks

FAT Brands currently carries a Zacks Rank #3 (Hold).

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