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Fertitta Entertainments to go public through SPAC merger

Billionaire Tilman Fertitta is taking his restaurant and casino empire public by merging with Fast Acquisition Corp, a special purpose acquisition company (SPAC) that raised $200m in its IPO in August 2020, taking advantage of recent investor enthusiasm for SPAC deals. After a difficult period for the company due to pandemic-induced shutdowns, Mr Fertitta plans to use the capital from the deal, as well as other funding secured from private investors, to pay some of the group’s debt and help pursue the company’s acquisition growth strategy.

Deal overview

Fertitta Entertainment’s merger with Fast Acquisition Corp, which is expected to close in Q2 2021, values the company at $6.6bn including debt. The deal will include its Golden Nugget division, which runs five regional casinos in the United States, and Landry’s restaurant business, which consists of around 600 restaurants and several brands including Del Frisco’s and Morton’s steakhouse chains. Fast Acquisition Corp, whose shares are traded on the New York Stock Exchange, rose as much as 6.8% on the morning of February 1st upon the deal’s announcement. Mr Fertitta has also obtained further capital from institutional investors alongside the merger to help achieve the group’s long-term objectives.

This deal comes after a difficult period for the company during the pandemic. Fertitta Entertainment’s $3.41bn pre-pandemic revenues in 2019, roughly three-quarters of which were derived from the restaurant industry, have been depleted during the coronavirus-imposed shutdowns, falling to around $250m in 2020. The company’s revenue shortage forced it to furlough tens of thousands of employees and borrow at a rate of 13%. Meanwhile, profits for the five regional casinos under the Golden Nugget division also experienced a sharp fall, albeit at a smaller rate than larger global operators such as Wynn and MGM. Mr Fertitta expects the group’s earnings to rebound to $575m this year and $648m in 2022.

With the announcement of the merger with Fast Acquisition Corp, a blank-cheque company taken public last year by fellow restaurateurs Sandy Beall and Doug Jacob, Mr Fertitta’s Houston-based business joins the ongoing rise of SPACs, which have dominated the IPO markets this year. A record-breaking $26bn in SPAC share sales were completed in the first month of 2021, with around 90 new companies starting to trade and numerous more having already filed for public listings. In fact, this is not Mr Fertitta’s first tie-up with a SPAC; late last year he took the mobile gambling segment of his business — Golden Nugget Online Gaming — public by merging with blank-cheque company Lancadia Holdings. Fertitta Entertainment still has voting control and owns roughly half of the company’s outstanding shares, valued at $700m.

Deal rationale

Landry’s will be making a return to public markets after more than a decade, when Mr Fertitta took the company private in 2010 because he didn’t think the public market valued it highly enough. The main reason for taking the company public now is to take advantage of opportunities for acquisitions in the wake of the global pandemic, particularly in the casino industry. Sports betting has exploded in the US since the change in Supreme Court betting laws in 2018, which although didn’t officially legalise gambling throughout the country, effectively allowed states outside of Nevada to legalise gambling within their borders. “I want to do big gaming deals,” Mr Fertitta said in an interview on January 31st, the day before the company’s merger was announced. “Thirty years ago there was gambling in two states. Now we’re approving new states for online almost on a weekly basis.” 

The company first began exploring whether to enter the public markets in 2019, when an increasing number of opportunities for mergers and acquisitions were hitting the market. However, the effects of the pandemic set these efforts back. Fast’s capital, alongside equity investment from institutional shareholders, will help the company strengthen its balance sheet and pursue its acquisition strategy.

Aside from the acquisitions, Mr Fertitta also plans to use some of the capital generated from a group of private investors towards reducing the company’s debt, which currently stands at more than $4bn for Golden Nugget’s and Landry’s combined business, down to $3.4bn.

The Fertitta Empire

Following the merger, Mr Fertitta will remain in his position as the chairman and CEO of Landry’s and Golden Nugget, owning roughly a 60% stake in the company, valued at over $2bn. He’ll also control the majority of the vote through a special class of stock. Current Fast Acquisition Corp shareholders will own about 5% of the new public Fertitta Entertainment company upon the deal’s completion, with a fifth of that set to be owned by SPAC founders Doug Jacob and Sandy Beall. Alongside the SPAC, Mr Fertitta has secured an additional $1.24bn from institutional investors, including Neuberger Berman, Fidelity Investments, and BlackRock Inc, who will collectively have a 35% stake in the business.

Mr Fertitta’s personal empire, which extends beyond restaurants and casinos, will not be included in the deal. This includes several hotels, such as the Post Oak in Houston, and most notably, NBA team Houston Rockets which Fertitta acquired in 2017 for $2.2bn, a deal that has propelled him to entrepreneurial fame. These will not be offered as part of the merger nor the sale to institutional investors and will instead remain privately owned.

Sources

https://www.ft.com/content/753d33d1-5a59-41dd-907d-25d76e373fe7

https://www.bloomberg.com/news/articles/2021-02-01/fertitta-takes-landry-s-public-again-at-a-6-6-billion-valuation

https://www.thestreet.com/investing/tilman-fertitta-takes-golden-nugget-landrys-public-via-spac

https://nypost.com/2021/02/01/golden-nugget-casinos-to-go-public-through-spac-merger/

https://investorplace.com/2021/02/fst-stock-golden-nugget-landrys-to-go-public-via-fertitta-entertainment-spac-merger/

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