Fatburger may have gotten its humble start 70 years ago as a tiny burger stand in South L.A., but there’s nothing small about the brand today. The fast-casual burger chain that coined the tagline “The last great hamburger stand” has attracted a loyal cult following: Ice Cube rapped about it, Magic Johnson once owned a piece of it, and Ray Charles was a fan. And now, this iconic burger joint that was originally launched by a black female entrepreneur is about to make some waves as its parent company, FAT Brands Inc., is going public.
FAT Brands, which in addition to Fatburger owns Buffalo’s Cafe and Buffalo’s Express, announced today that the Securities & Exchange Commission qualified its filing for a Regulation A+ initial public offering. The company will begin taking orders from investors today through Oct. 13, offering 2 million shares at $12 per share. The offering is expected to close on Oct. 20.
Fatburger's business has had a roller-coaster journey, but Andy Wiederhorn, CEO and president of FAT Brands, has been pushing for its growth as a global brand over the last few years. The chain is now in 32 countries with restaurants that are already open or are in development.
But to understand how Fatburger has gotten to this point is to know its fascinating history. In 1947, Lovie Yancey partnered with her then-boyfriend, Charles Simpson, to open a three-seater burger stand on Western Avenue near Jefferson Boulevard, in front of her house. “Black entertainment industry musicians would come by late at night after their gigs to get burgers at her house,” Wiederhorn says, which was the impetus for opening her restaurant.
Back then, the shack was dubbed “Mr. Fatburger,” and in the same way it operates today, the burgers were made to order and customizable, with toppings like chili and fried eggs. “The name of the store was my idea,” Yancey told the Wave newspaper in 1985 [via the Los Angeles Times]. “I wanted to get across the idea of a big burger with everything on it … a meal in itself.”
Yancey and her boyfriend eventually broke up, and in 1952 she dropped the “Mr.” in the restaurant name, leaving it just “Fatburger.” She expanded her business, and in 1973 opened a location in Beverly Hills that became popular with celebrities. Her brand grew as she opened more outposts and then began offering her business as a franchise in the early 1980s.
“She went on to be a minority woman business owner in L.A. for 40 years before she sold the business to Chris Blackwell, the guy that owned Island Records,” Wiederhorn says. “And then Magic Johnson and some additional celebrities like Janet Jackson, Cher, Darren Star and David Spade bought the brand from Chris Blackwell in 2000, and we [Fog Cutter Capital Group] bought it from Magic and his group in 2003 when there were only 40 locations. We’ve grown it around the world to almost 200 [locations that are] open and 300 more to be built.”
But when the recession hit, Fatburger also suffered. The company filed for Chapter 11 bankruptcy in 2009, which led to major changes in the way Fatburger operated. Fatburger converted its company-owned Nevada and California locations into franchises and sold those off. “We went from being an operator of more than 40 company-owned restaurants to having less than half a dozen that we operated,” Wiederhorn says. “Today we don’t even own any; they’re all franchises.”
He credits expanding the company globally for saving the Fatburger brand. While the “U.S. economy was crippling us,” he says, they found that other countries loved the idea of American food, especially burgers. They opened Fatburger franchises around the world, and today, more than two-thirds of its franchise locations are international, with a third open domestically.
There also was turmoil unrelated to the recession. Wiederhorn served a stint in prison for white-collar crime with another company, Wilshire Credit Corp. According to the L.A. Times, “After one of Wiederhorn's business associates in Portland was arrested under a 22-count federal indictment, including charges of mail fraud, money laundering and witness tampering, authorities began investigating Wiederhorn too. In 2004, he pleaded guilty to charges of paying an illegal gratuity to his associate and filing a false tax return. He spent 15 months in prison in Sheridan, Ore.”
At the time, Wiederhorn’s Fog Cutter already owned Fatburger. According to Forbes, “One day before his plea deal, Fog Cutter’s board agreed to pay Wiederhorn $4.6 million while in jail, per the rewritten terms of his contract. The compensation more than covered his $2 million fine.”
Wiederhorn is open about discussing those charges: “We did a loan restructuring for one of our public companies' debt and it was a highly charged time when Enron and other big public companies were collapsing and the government was prosecuting every case they could. I’ve always adamantly denied that there was any intentional [wrong]doing or intent to commit a crime. I had bad legal advice and I settled the case to put it behind me and I did everything I needed to pay the fines and served the time.”
Wiederhorn feels now is a ripe time to grow FAT Brands with this IPO. He created FAT Brands so that his company could become a global, multibrand franchising company. “We decided to access the public capital market rather than some sort of a private equity deal or using a tremendous amount of debt,” Wiederhorn says. “We just felt it was the right time, and our story would be understood by investors to raise capital and acquire more brands.”
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