Fat Brands Inc. has spun off two of its restaurant brands into a separate public company to better deal with debt and the growth of the concepts.

Andrew Wiederhorn, the chair and founder of the Beverly Hills restaurant chain operator, said the company wanted to take sports bar Twin Peaks and barbecue restaurant Smokey Bones Bar & Fire Grill public at a valuation they believed in and raise money when the time was right and investors were at the door.

“We think (spinning it off) is a great way to get it ready to go,” Wiederhorn said.

On Jan. 30, the day that Twin Hospitality Group Inc. went public, the Fat Brands stock price increased by 16.5% from a close on the previous day of $3.27 to a close of $3.81 on Jan. 30.

Twin Hospitality will have its own independent board although Fat Brands will be the majority shareholder.

Deleveraging the company

With $1.4 billion in debt, Fat Brands is looking to deleverage its balance sheet, Wiederhorn said.

That amount owed by the company is now down to $1 billion after $400 million went with Twin Hospitality following the spinoff, he added.

“We are dramatically reducing our debt and unlocking a lot of value,” he said.

Before the spin off, Fat Brands had Twin Peaks valued at $1.4 billion, Wiederhorn added. The company as of Feb. 6 had a market cap value of about $476 million.

“There is a huge chunk of profit or gain that we are unlocking by going public,” he said.

By shedding $400 million in debt from Fat Brands’ books and with the shares in Twin Hospitality that it can sell to pay down more debt, the company can further deleverage its balance sheet because interest rates are high, he continued.

“It doesn’t look like they are coming down any time soon to where they were,” Wiederhorn said.

Fat Brands paid $300 million in 2021 for Twin Peaks and then put $100 million into the brand. It has also grown the sports bar chain from 83 locations to 115 in the U.S. and Mexico.

Two years later, it acquired Smokey Bones for $30 million, mainly for the locations so that they could be converted into Twin Peaks. As of now, the plan is to convert 30 of the 60 of the barbecue restaurants, Wiederhorn said.

The goal is to have 10 corporate-owned and 20 franchisee-owned, he said.

The first converted location that it opened a couple months ago in Lakeland, Florida was doing $3.5 million as a Smokey Bones and is now doing $8.3 million as Twin Peaks, he remarked.

“It is a real great opportunity to increase sales,” Wiederhorn added.

Joe Gomes, managing director of equity research at Noble Capital Markets Inc. in Boca Raton, Florida, said that it was always Fat’s long-term business goal to spin off or sell some of its assets. In his opinion, the most valuable assets the company had to spin off and take public were the Twin Peaks and Smokey Bones brands.

“As they acquired various assets, one of the underlining reasons for that is they would look to monetize those assets, especially if they felt that the value of those assets was not being reflected in Fat Brands’ price,” Gomes said.

In spinning off Twin Hospitality, Fat Brands likely wanted to show those two businesses making up the group were worth a lot more as a separate company than what they were valued as under the Fat Brands umbrella, he added.

“So far, so good,” Gomes continued. “The stock is trading $9 and if you multiply that by the number of shares outstanding it is a market cap well in excess of Fat Brands market cap.”

Compared to Twin Hospitality’s $476 million market cap, Fat Brands had a market cap of $63 million on Feb. 6.

The Twin Hospitality stock closed at $9.48 on Feb. 6.

Opening the franchise pipeline

With 2,300 restaurant locations, Fat Brands is the 25th largest chain in the United States based off of current unit count of restaurant brands in the country. It also has about 1,100 locations planned that will be opened by franchisees.

“We want to see ourselves grow from number 25 to number 20 by getting those other 1,100 restaurants open,” Wiederhorn said.

But not all of those new stores will be for all of the 16 restaurants brands that Fat owns. It has upwards of seven high growth brands, including Twin Peaks, Fatburger, Johnny Rockets, Fazoli’s and Round Table Pizza, and those will make up the 1,100 new locations.

With the franchisees taking on the cost of opening the new stores, there is a cost savings to the parent company, Wiederhorn said.

“I want to get the franchise pipeline open, to get the franchisees to open more locations,” he added.

Outside of Atlanta, Fat Brands has a cookie dough factory for supplying its chains like Great American Cookies and for making dry pretzel mix for its pretzel stores.

In May 2022, the company acquired the Nestle Tollhouse Café by Chip stores and converted them into Great American Cookies locations by the end of that year. Fat Brands was getting not only additional franchise fees from this deal but also the money earned from selling the cookie dough to those locations.

But with only about 40% utilization of the cookie dough factory taking place, strategically, Wiederhorn said, he’d like to find another cookie brand or two acquire to use up the excess capacity at the Georgia factory.

He added that there may be another sports bar brand that Fat Brands can convert into Twin Peaks locations “or something that is a sister brand that makes sense for Twin Peaks because that is a really good space.”

Wiederhorn described Twin Peaks as a “high end Hooters” where everything is done better.

The furniture is more comfortable and upscale, and its food is made from scratch as opposed to being pre-cooked and merely heated up. And the beer is “super cold,” he said, adding that it was also a great place to watch a sporting event.

“We have 100 TVs so you can watch any game possible,” he said. “You can sit on a barstool or in a booth for three hours and be comfortable watching the game and not have your back or your butt killing you from being uncomfortable.”

Gomes said that Twin Peaks spinoff is likely not the last one for Fat Brands.

“I think there is more under the Fat Brands umbrella that at the right time they would look to do the same thing and ultimately the market will value those assets at significantly more than what they are being valued under Fat Brands,” he said.

Under indictment

A native of Portland, Oregon, Wiederhorn attended the University of Southern California. Prior to founding Fat Brands in 2017, he started Fog Cutter Capital Group and Wilshire Credit Corp., the latter of which is now shuttered.

While at Wilshire, a criminal investigation into his dealings led Wiederhorn to plead guilty to filing a false tax return and a violation of the pension fund law. He served 14 months in federal prison in 2004-2005.

In May, Wiederhorn was indicted by a federal grand jury on charges alleging a $47 million “sham loan” scheme. The money was given to Wiederhorn and some family members “for their personal benefit,” according to the indictment. Some of that money allegedly went toward private-jet travel, vacations, automobiles, jewelry and a piano.

Wiederhorn called the case “an outrageous waste of our time and money” and “a political weaponization” of the U.S. Justice Department.

“The case was brought for headlines,” he said. “There was never any wrongdoing, everything was disclosed to investors. Our investors are furious about this case and the investigation is a total waste of the company’s money.”

Named as defendants along with Wiederhorn were Fat Brands; William J. Amon, a certified public accountant and attorney who provided tax-advisory services to Wiederhorn, Fat, and Fat affiliate Fog Cutter Capital; and Rebecca D. Hershinger, Fat’s former chief financial officer. All the defendants have pleaded not guilty to the charges against them.

A trial is scheduled for Oct. 28 at the Roybal Federal Building in downtown with U.S. District Judge R. Gary Klausner presiding over the case.