This is an English adaptation of a FoodBud historical article originally published on December 8, 2021.
Many restaurant brands do not need equity financing to scale. FAT Brands is a case study in using franchisee capital, public-market funding, debt issuance, and restaurant cash flow to buy brands faster than building them from scratch.
FoodBud’s view in December 2021 was that FAT Brands represented an unusually aggressive ceiling for an asset-light franchise operator: not as large or heavy as 3G or JAB, but far beyond the domestic China players that kept launching new franchise brands.
FAT Brands was using three pools of capital:
The model came with high leverage. In a second-quarter earnings call, the company’s CEO was challenged by analysts over leverage, which was cited at 6x-7.5x.
FoodBud compared the closest China analogue to Wallace, whose two companies, one engineering-related and one supply-chain-related, were listed on the NEEQ with limited liquidity. If Wallace could list successfully on a more liquid public market, FoodBud argued it might unlock new strategic options. Wallace’s newer brand strategy already looked aggressive at the time.
Wallace’s joint-ownership structure would likely face meaningful resistance in either A-share or Hong Kong markets. In China’s franchise ecosystem, however, FoodBud viewed Wallace’s equity model as an important school of thought. Wallace had borrowed partnership ideas from law firms and consulting firms: collective shareholding, cross-shareholding, and stakeholder alignment to accelerate replication. Internal crowdfunding turned executives, core store managers, and employees into partners rather than purely employees. External crowdfunding brought in suppliers, landlords, and other stakeholders, with shareholdings ranging from 2.5% to 40%, easing expansion funding pressure and creating shared incentives. Store-level crowdfunding plus direct management created a localized model for using social capital at scale.
By late 2021, FAT Brands’ acquisitions appeared to be accelerating:
Together, those acquisitions represented $892.5 million in disclosed spending. FAT Brands’ Class A market capitalization was only about $153 million at the time, and FoodBud described the listed entity as mainly useful for debt issuance, with average debt costs of about 6%-7%.
Global Franchise Group was particularly important. It owned five brands: Round Table Pizza, Great American Cookie, Hot Dog on a Stick, Marble Slab Creamery, and Pretzelmaker. It also brought supply-chain capacity through a 37,400-square-foot facility supporting franchisees.
The $442.5 million transaction was completed through a mix of cash and equity. Global Franchise Group had 1,433 stores, 97.7% of them franchised. Of those stores, 86.7% were in the United States, with the network spanning 12 countries. Round Table Pizza was the largest brand and contributed around 60% of Global Franchise Group’s systemwide sales.
For FAT Brands, the acquisition lifted the store base from 628 to 2,061 stores and added a supply-chain asset.
According to FAT Brands’ October investor presentation, the company positioned its strengths as a global franchising platform, asset-light operating model, acquisition-led growth, and proven post-acquisition integration.
Based on third-quarter disclosures, FAT Brands had 15 restaurant brands. Round Table Pizza was the largest by store count, with 415 units. The company also had 750 franchisees, and its stores covered 40 countries.
The portfolio spanned four categories: QSR, fast casual, casual dining, and polished casual, with the main concentration in QSR.
Systemwide sales showed a large step-up in the third quarter. FAT Brands’ own revenue came mainly from three sources: franchise fees, royalties, and advertising fees paid by franchisees. Royalties were the core revenue stream, generally ranging from 0.75% to 6% of net sales depending on brand policy.
CEO Andy Wiederhorn highlighted on the earnings call that a larger brand portfolio allowed the company to sell multiple concepts to the same franchisee. If Fatburger was not suitable, FAT Brands could offer Twin Peaks, Fazari’s, or other brands, reusing franchisee relationships across the portfolio.
In the third-quarter earnings call, Andy Wiederhorn said the sales team completed 9 deals in Q3, adding 166 stores. Year to date, the company had completed 32 deals, adding 581 stores, including 157 stores from Global Franchise Group brands.
FAT Brands CEO Andrew Wiederhorn held 48% of the company and was its largest shareholder. Ls Global Franchise LP and ADW Capital Management LLC held 14% and 5.0% of outstanding shares, respectively, making them the second- and third-largest shareholders.
In an amended S-1 filing that year, FAT Brands disclosed franchise fee information. For Fatburger, the initial franchise fee was $50,000, or $65,000 in international markets. The brand charged 6% of net sales as royalties over 15 years, plus a 2% advertising fee. Johnny Rockets, Buffalo’s, Ponderosa / Bonanza, Hurricane, and Yalla had similar franchise policies.
The site-selection criteria included daily traffic above 35,000, convenient intersections, lunch-hour accessibility, a lease term of at least 5 years, and signage visibility of at least 500 inches.
FoodBud viewed the supply-chain side as relatively weak, despite the company having built a store supervision team. The article described FAT Brands as closer to a trading company in structure, with stronger capabilities in capital-market execution. It also developed its own POS acquiring system, including front-end reservations, to support stores.
The amended S-1 disclosed 216 employees as of March 28, 2021, including 148 store-level employees.
The company also had multiple family-related executive links. Andrew Wiederhorn’s son Thayer Wiederhorn served as CMO, Taylor Wiederhorn as CDO for franchise development, and Mason Wiederhorn as creative director. Executive Vice President Donald Berchtold’s son Jacob Berchtold served as COO of the fast casual division. Donald Berchtold was also Andrew Wiederhorn’s former father-in-law.
The filing also disclosed legal history involving Andrew Wiederhorn and the company. The matters related mainly to financial products from Wilshire Financial Services Group, a company he had previously founded, which ran into problems during the 1998 financial crisis. He was sued over losses from fund mismanagement, served 14 months in 2004-2005, and paid $2 million in restitution.
FAT Brands’ revenue base was still small. In the first quarter of 2021, revenue was $6.65 million, and the company recorded a net loss of $2.43 million. Cash flow was negative.
In a November media interview, CEO Andrew Wiederhorn described three major tools for franchise growth: SPACs, securitization, and big checks. FAT Brands used securitization most heavily. FoodBud noted that executing this requires a strong finance team; FAT Brands’ CFO had previously been a JPMorgan analyst and had also served as CFO of a listed company.
FoodBud argued that FAT Brands had been running this strategy since 2017, with acquisition targets becoming larger over time even though the financials were not especially strong. How far and how long the model could run remained to be tested.
The useful lesson for operators was the extreme use of financial tools, combined with repeated reuse of franchisee resources across brands. A multi-brand portfolio can place different concepts in the same building, similar to cases in China where Pizza Hut and KFC operate together, reducing some property and opening costs while allowing labor sharing. The weakness, in FoodBud’s view, was the lack of deep supply-chain support.
Note: IPO, financing, leverage, acquisition, and forward-looking figures in this article are historical as of December 8, 2021.