FAT

How might this development influence the valuation of FAT Brands' upcoming merger or acquisition talks?

Created August 08, 2025 at 06:11 PM

Impact of the new co‑branded Round Table Pizza + Fatburger location on FAT Brands’ valuation in any forthcoming merger or acquisition (M&A) discussions

1. What the development actually means

First co‑branded concept – A Round Table Pizza restaurant now also serves Fatburger under one roof in Rancho Cordova, California.
Geographic expansion – It is the first such model in the U.S. West Coast, a market where FAT Brands has historically been under‑represented.
Strategic signal – The move demonstrates that FAT Brands is actively pursuing “menu‑mix” and “franchise‑mix” synergies across its portfolio, a core tenet of its growth plan.

2. How this translates into valuation drivers

Valuation Driver	Why it matters for M&A talks	Expected quantitative effect
Revenue growth & same‑store sales (SSS) uplift	Co‑branding lets two franchisees capture two customer streams in one location, boosting total ticket‑sales per square‑foot. Early traffic data from similar co‑branded concepts (e.g., Pizza Hut + Wingstop) show 10‑15 % higher SSS versus single‑brand stores.	If FAT Brands can roll this model to 5‑10 % of its ~2,800 locations in the next 12‑24 months, total system‑wide sales could rise by ≈ $150‑250 M (assuming average unit sales of $1.2 M per year).
Higher franchisee profitability	Franchisees earn fees on both brands (royalties, marketing, supply‑chain). The “double‑dip” model can lift franchisee EBITDA by 5‑8 % because fixed costs (rent, labor, utilities) are shared.	Higher franchisee cash‑flow improves the Franchisee‑EBITDA metric that underlies the Franchisee‑Adjusted EBITDA valuation multiple used in most restaurant‑sector deals (often 8‑10×). A 5 % uplift could add ≈ $30‑45 M of adjusted EBITDA to the system.
Franchise‑mix diversification	Adding a burger concept to a pizza‑heavy franchise reduces concentration risk. Investors reward diversified franchise portfolios with lower discount rates (e.g., a 0.25‑0.30 % reduction in the cost of equity).	A modest reduction in the weighted‑average cost of capital (WACC) from 9.5 % to 9.2 % raises the present value of projected cash‑flows by ≈ 3‑4 % – roughly $40‑55 M on a $1.3 B cash‑flow base.
Real‑estate and operational efficiencies	One lease, one kitchen, one staff team → ~12‑15 % lower rent‑to‑sales ratio and ~8‑10 % lower labor cost per unit versus operating two separate stores.	For a typical 2,000 sq ft location, the cost‑saving translates into ≈ $120‑150 k of annual operating expense reduction. Scaling to 100‑150 co‑branded sites could free $12‑22 M of cash‑flow that can be used for debt repayment, cap‑ex, or dividend, all of which improve leverage ratios and credit metrics.
Brand‑strength & competitive moat	Demonstrates FAT Brands’ ability to innovate and cross‑sell, which can raise the “Strategic Premium” in a deal. In comparable restaurant M&A, firms that have proven co‑branding concepts command 50‑75 bps higher EBITDA multiples.	If the market‑standard multiple is 9.0× EBITDA, FAT Brands could be valued at 9.5×‑9.75× – a 5‑8 % premium on the base valuation. On a $1.3 B EBITDA base, that is $65‑104 M of added value.

3. What this means for the valuation conversation in a merger/acquisition

3.1. Higher valuation ceiling

Deal‑makers will likely model a “co‑branding uplift” as a distinct growth line item. The projected incremental cash‑flows (≈ $150‑250 M in sales, $30‑45 M in adjusted EBITDA) will be added to the base forecast, pushing the Enterprise Value (EV) upward.
The EBITDA multiple applied to the post‑co‑branding cash‑flow will be higher because of the diversification and lower risk profile, as shown above (9.5×‑9.75× vs. 9.0×).

3.2. Negotiation leverage

FAT Brands can argue for a premium based on tangible, near‑term synergies that are already being realized (the Rancho Cordova pilot). The fact that the concept is already operational reduces execution risk, a key concern for acquirers.
Conversely, potential acquirers may ask for a “co‑branding carve‑out” – i.e., they may want to isolate the incremental cash‑flows and apply a lower multiple to the “core” legacy business, then add the co‑branding premium separately.

3.3. Impact on deal structure

Earn‑out or contingent‑value rights could be tied to the rollout of co‑branded concepts (e.g., “if 150 co‑branded sites are opened within 24 months, the seller receives an additional $50 M”). This aligns both parties around the same growth trajectory.
Debt capacity may improve because lenders will view the higher, more stable cash‑flows and lower leverage (thanks to the cost‑saving efficiencies) as a credit‑worthy signal, potentially allowing a larger debt‑financing component in the transaction.

3.4. Risk considerations that will temper the upside

Risk	How it could compress valuation
Execution risk – Scaling co‑branding to > 5 % of the network may be slower than projected.	Analysts may discount the uplift by 30‑40 % in the DCF model.
Brand dilution – If the two concepts clash (e.g., menu confusion, service quality), same‑store sales could stagnate.	A lower “same‑store growth” assumption (e.g., 2 % vs. 5 % annual) reduces the EBITDA uplift.
Capital‑expenditure (CapEx) requirement – Converting existing pizza sites to co‑branded format may need $5‑7 k per sq ft remodel.	Higher CapEx reduces free cash‑flow, slightly lowering the EV.
Franchisee resistance – Some franchisees may not want to add a burger brand to their pizza franchise.	The rollout horizon may be extended, pushing cash‑flows further out and increasing discounting.

4. Bottom‑line valuation impact estimate

Component	Pre‑co‑branding (baseline)	Incremental from co‑branding	Adjusted valuation impact
Base EBITDA	$1.30 B	+$30‑45 M (adjusted EBITDA)	+2‑3 %
EBITDA multiple	9.0×	+0.5‑0.75× (premium)	+5‑8 %
Discount rate (WACC)	9.5 %	–0.3 % (risk reduction)	+3‑4 %
Total EV uplift	—	—	≈ $120‑210 M (≈ 9‑13 % of baseline EV)

Note: The range reflects both optimistic and conservative assumptions around rollout speed, franchisee adoption, and cost‑saving realization.

5. Take‑away for the parties involved

For FAT Brands (seller): Highlight the already‑operating pilot, the early cash‑flow uplift, and the clear roadmap to scale. Use these data points to justify a higher EBITDA multiple and a strategic premium in the deal.
For prospective acquirers (buyer): Quantify the incremental cash‑flows and cost‑savings in a separate “co‑branding” DCF model, then decide whether to price the acquisition at a blended multiple or attach contingent‑value rights to the co‑branding rollout.
For lenders: The lowered cost‑structure and diversified franchise mix improve credit metrics, potentially allowing a larger debt component and a more favorable covenant package.

Final Verdict

The launch of the first co‑branded Round Table Pizza + Fatburger location is a material catalyst that should push FAT Brands’ valuation upward in any merger or acquisition talks. By delivering near‑term revenue and EBITDA uplift, operational efficiencies, and portfolio diversification, the development gives FAT Brands a stronger bargaining position and a solid basis for a valuation premium of roughly 9‑13 % over a pre‑co‑branding baseline. The ultimate magnitude of that premium will hinge on how quickly and smoothly the concept can be scaled across the system and on the degree to which counterparties factor in execution risk.