ARC Group to stay active in restaurant M&A, CEO says

ARC Group Inc. [OTC:ARCK], owner of fast-casual restaurant chains, will continue to look for acquisitions as it awaits the closing of its latest deal, CEO Seenu Kasturi said.

Kasturi said that since the acquisition of Tilted Kilt Pub and Eatery was announced on 6 November, he has been getting pitches about more acquisitions. He is open to ideas, he said, as the Orange Park, Florida-based company plans to use M&A to scale over the next several years.

ARC is interested in buying more regional fast-casual restaurant chains with at least 15 to 20 locations. But Kasturi said it could look at single locations or a handful if there was something unique or particularly appealing about the business, like the chance to pay a low multiple.

The acquisition of Tilted Kilt will give ARC Group significant scale with 47 locations in 15 US states and in the Canadian province of Ontario. The company currently has 17 franchised and four company-operated Dick’s Wings & Grill units and four company-owned Fat Patty’s restaurants, which specialize in sandwiches and burgers, that were acquired in 2018 for USD 12.3m. It also has a deal with the NFL’s Jacksonville Jaguars and operates three Dick’s Wings concession stands in its arena.

A combination of cash, debt or equity would be used to finance deals, Kasturi said, noting that he would prefer not to use stock. Kasturi said the company could also do a capital raise if necessary. The stock trades at USD 1.30, vs. a 52 week range of between USD 1.10 and USD 2.25.

In terms of the type of restaurant, Kasturi said ARC is “agnostic” and that he looks more for brands that have growth potential. Owners looking to exit their restaurants and move on or concepts that have hit a growth ceiling and need more resources are likely targets, he added.

ARC would be “in the game” for deals of up to USD 50m, Kasturi said. He said the company is most likely to target the southeast and Texas, adding that there is not much desire to buy concepts on the West Coast.

The company also plans to apply to uplist on the NASDAQ exchange in 2Q19 or 3Q19. Kasturi said. New York City-based Maxim Group, the same firm the company uses for financial advice on M&A, has been retained to underwrite the uplisting.

ARC hopes to sell 10 franchises this year and open a few company-owned restaurants, Kasturi said. Organic growth plus the Tilted Kilt deal are expected to grow the company’s revenue from about USD 9.5m in 2018 to between USD 25m and USD 30m in 2019, the executive added. Its current market cap is about USD 9.2m.

Its competes with many types of restaurants, Kasturi said, but he pointed to concepts like Roark Capital Group-owned Buffalo Wild Wings and Brinker International[NYSE:EAT]-owned Chili’s as the main competitors for Dick’s Wings and Fat Patty’s, respectively.

ARC Group uses Philadelphia-based Fox Rothschild for legal matters and Fargo, North Dakota, based Eide Bailly for financial auditing.

by Alan Burdziak

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