The parent company of old-school burger chain Fatburger is exploring a decidedly new-school way to raise money.
Fat Brands Inc., a brand licensing subsidiary of Beverly Hills-based Fog Cutter Capital Group Inc., filed for an initial public offering this month through Regulation A+, an equity crowdfunding measure that allows companies to raise up to $50 million from unaccredited investors.
Fat Brands, which values itself at $96 million pre-IPO, wants to raise up to $24 million by offering 2 million common shares at $12 a share.
Fog Cutter is itself traded over the counter and will retain an 80 percent stake in its subsidiary after the public float.
Fat Brands, whose brands Fatburger, Buffalo’s Café and Buffalo’s Express generated just over $10 million in total revenue last year, plans to start trading on the Nasdaq on Oct. 2, said Fog Cutter Chief Executive and principal shareholder Andy Wiederhorn.
The motivation to try the new IPO route?
Going public through equity crowdfunding gives the company more visibility, Wiederhorn said.
“We were going to do a conventional IPO when I learned about Reg A+,” he said. “I liked that we could offer (shares) to our franchisees, their employees and customers.”
Only four other companies have gone public through Regulation A+, according to Sara Hanks, chief executive of CrowdCheck Inc., an Alexandria, Va., firm that performs due diligence for crowdfunding investors and companies.
President Barack Obama signed the measure into law in 2012. But because the U.S. Securities and Exchange Commission took several years to develop the regulatory framework, equity crowdfunding has been an option for companies for less than 18 months.
The offering must still get approval from the SEC and Nasdaq before it can begin trading. Wiederhorn said he is confident it will pass since Fat Brands has been in touch with both entities.
Most companies that avail themselves of the new fundraising outlet don’t go public, and three of the four that have used Reg A+ for an IPO are early stage outfits. The move by companies with more mature brands such as Fat Brands for a crowdfunded public offering signals a shift, said Howard Marks, co-founder of Santa Monica equity crowdfunding platform StartEngine (see related charts, item in Deals & Dealmakers, page 10).
“I think Regulation A+ is going to prove to be the go-to down the road for companies that want to raise money,” said Marks. “As lawyers become more familiar with it and CEOs understand their options, they’ll go for it. Like any new regulation, it takes time to be adopted.”
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