Restaurant SPAC-ilicious: What Is a SPAC, and How They May Impact the Foodservice Industry

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You’ve probably been hearing a lot about SPACs. In the U.S., $42 billion has been raised by SPACs in just the first three weeks of 2021. That’s three times the amount raised during the whole of 2019. This seems like a lot, but it’s distributed across all industries (and there have been a handful specifically for restaurants and foodservice).

There are currently (as of January 2021) 283 SPACs seeking a target. Historically (using 2014–2018 for reference, because many of the SPACs from 2019–2020 are still open, and that would bias the percentage of liquidation), an average of 15% of SPACs are liquidated (“go home without the prize”) because they are not able to successfully complete a deal

When that happens, the SPAC sponsors lose millions. More than ever, it goes to show the importance of having an accurate reading on the pulse of the industry, access to a unique and proprietary deal flow, and know-who to assemble an outstanding management team.

What is a SPAC?

A SPAC is a Special Purpose Acquisition Company. These companies don’t commercialize any products or services but are instead formed with the purpose of raising capital and acquiring another company. They are often referred to as “blank check companies” because investors don’t know what the target will be, and the capital raise takes place in public markets (via an IPO).

  • SPAC IPO: There is not a stated target, but usually a declaration of intention to pursue companies in a particular industry
  • Sourcing and Diligence: After the SPAC IPO the clock starts (usually two years) to carry out an acquisition
  • “De-SPACing” Process: Shareholders hold a vote to approve the acquisition; if the acquisition is completed, the company is listed on the stock exchange
  • Liquidation: If the acquisition is not completed on time, the SPAC is liquidated; funds are returned to investors (and SPAC sponsors lose a substantial amount of money)

Are There Any SPACs Targeting the Restaurant Industry?

There are a handful of SPACs that are focused on the foodservice industries, at various stages.

Restaurant SPACs Seeking a Target

  • Fast Acquisition Corp. (FST): This is a $200 million SPAC backed by Sandy Beall (Ruby Tuesday’s founder), Doug Jacob (&Pizza investor), and Kevin Reddy (previous Noodles & Co. CEO). This SPAC was launched in August 2020 and is seeking opportunities that resulted from the pandemic. Namely, a strategy leveraging real estate, growth companies outperforming their peers and their own past performance because of a strong off-premise channels, and potential for international expansion. The EBITDA target is between $40 and $150 million, and $600 million-plus enterprise value.
  • Starboard Value Acquisition Corp. (SVAC): This SPAC went public in September 2020 raising $329.8 million. It’s sponsored by Starboard Value. The target is wider than restaurants, including technology, healthcare, consumer, industrials, hospitality and entertainment.
  • Tastemaker Acquisition Corp.(TMKR): The SPAC is focused on the restaurant space. It was launched by former executives of Jamba Juice and Barteca and raised $240 million in January 2021 ($40 million above target). The target could be restaurant chains or restaurant technology companies.

Foodservice SPACs That Found a Target

  • Burger King: In 2012, the company merged with a SPAC run by Bill Ackman in a $458 million deal.
  • Del Taco: The company went public via a SPAC in 2015.
  • Landcadia Holdings: Merged with delivery company Waitr in 2018 in a deal valued at $308 million.
  • OPES Acquisition Corp.: Announced the acquisition of fast-casual BurgerFi for $143 million in enterprise value in June 2020. The EV/EBITDA multiple was 13.6x, and the deal included $40 million allocated to the chain’s expansion.

Failed Foodservice SPACs

  • Allegro Merger: The SPAC announced a $380 million deal to acquire TGI Fridays in November 2019, but the deal didn’t go through due to the disruption caused by the pandemic. Allegro had to return the shareholders their money.
  • Leo Holdings: CEC Entertainment (Chuck E. Cheese’s and Peter Piper parent) didn’t go through with the transaction either.

Why Are SPACs Such a Hot Investment Vehicle?

In the U.S., there was $83 billion raised by SPACs during 2020 — six times the amount raised in 2019. They are popular for two reasons, in particular: 1) very high demand and low supply (think of all of the dry powder trying to find investments), and 2) they can be wildly profitable. 

  • The U.S. SPACs currently seeking a target reach an average ARR of close to 25%, with a max of 434%
  • The U.S. SPACs that have already announced an acquisition reach an average ARR higher than 60%, with a max of 975%

What Does it Take to Launch a Successful SPAC?

There are five (5) key metrics to a successful SPAC.

TEAM Given that a target is identified after the IPO, the team for a SPAC (expertise in the industry or high-performance companies, investment track record, etc.) is a signal for how successful the investment vehicle can be.
THESIS Where and how the team is applied, defining the ideal target and what will be the levers to innovate and create value. Industry expertise is key to identify what’s now and next and where the growth is going to come from.
FIND The target is found after the SPAC is founded, and if the transaction is not closed within 12-24 months the penalty is gruesome. Having an industry expert to help in the hunt increases the chances of being successful.
CLOSE Sponsoring a SPAC requires dedicated teams and advisors in a variety of capacities. The quality of these advisors shows when it’s the time to close the deal.
FUNDAMENTALS As with any stock, there are going to be market fluctuations, so — as with any investment — the fundamentals of the business will make the difference. Here, the team makes the difference again, contributing to the target’s growth and performance optimization.

SPACs took several steps to make themselves more attractive to target companies in the back half of 2020, including structuring deals that require less equity ownership. While this certainly helps, at the end of the day, we believe it will be industry expertise that will ultimately be the number-one factor that makes for a successful restaurant SPAC in 2021.

About Aaron Allen & Associates

Aaron Allen & Associates is a global restaurant consultancy specializing in brand strategy, turnarounds, and value enhancement, and accelerating the future of foodservice. We have worked with a wide range of clients including multibillion-dollar chains, hotels, manufacturers, associations, and prestigious private equity firms.

We help clients imagine, articulate, and realize a compelling vision of the future, align and cascade resources, and engage and enroll shareholders and stakeholders alike to develop multi-year roadmaps that bridge the gap between current-state conditions and future-state ambitions.

About Aaron Allen Capital Partners

AACP is an investment group focused on funding the future of foodservice and solving the biggest pain-points for one of the largest industries globally.

Serving at the intersection of capital, concepts, and management, we connect investors with foodservice operators and technology companies and strive to contribute meaningfully to leading modern hospitality transformation stories. 

Backed by decades of experience in consulting, we have worked with clients spanning six continents and 100+ countries, collectively posting more than $200b in revenue across nearly every geography, category, cuisine, segment, operating model, ownership type, and phase of the business life cycle. Learn more about AACP

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