There seems to be good news for the diversified restaurant company Ignite Restaurant Group Inc. (OTCMKTS:IRGTQ). Those living in Houston may remember well that the company filed voluntary bankruptcy to facilitate the sale of the business to a third party. It was communicated in this press release that was received by the market on June 6, 2017. The news came out with a good note, as the private equity company Kelly Companies of Southern California, LLC, indicated to be interested in bidding for the company. We will see later in this article that someone else bought the company in the auction. Have a look at the most recent price action before we tell you all the details.
IRGTQ operates two brands; Joe’s Crab Shack, and Brick House Tavern + Tap. The first Joe’s Crab Shack restaurant was opened in Houston, Texas, in 1991. The Brick House brand was developed in 2008. Another restaurant called Romano’s Macaroni Grill was acquired in 2013, but the brand was sold in 2015. The business is described in the annual report as follows:
“Both of our restaurant brands offer a variety of high-quality food and beverages in a distinctive, casual, high-energy atmosphere, and operate in a diverse set of markets across the United States and internationally.” Source
Let’s review each brand independently:
– Joe’s Crab Shack: it offers more than 12 items including “Lobster, Queen, Snow, Dungeness, and King Crabs sourced from government regulated and sustainable fisheries.” Additionally, clients can select from a list of 12 appetizers that include “Great Balls of Fire, Crab Nachos and Crazy Good Crab Dip, and over 40 entrées, including Steampots, Buckets of Crab, East Coast Platter and several “out of water” options“. Pricing ranges from $7.59 to $49.99.
We invite readers to check the TripAdvisor site, wherein plenty of comments regarding the restaurant can be found. There are 76 reviews and the overall rating is 3/5 stars. This is a recommendation from one of the clients:
“My husband and I took his parents to dinner here. The hostess and server were fabulous. They really gave us their attention. My mother-in-law didn’t like her sweet potato fries very well so we requested another batch and they were prepared the second time to her liking. Everyone enjoyed their food. I had the crab cake sandwich and it was really delicious. The server did a great job checking on us and made it a pleasant experience.” Source
– Brick House Tavern + Tap: customers can find up to “15 appetizers, 35 entrées, seasonal specials, brunch, dessert and specialty cocktails” in the menu of this brand. Most popular ones seem to be the Deviled Eggs, Hickory Smoked Sockeye Salmon, and Duck Wings. Furthermore, the restaurant also serves burgers, such as the Bison Burger, which is chargrilled and topped with jalapeño cilantro mayo and candied slab bacon. Brick House’s entrées range in price from $8.00 to $26.00. The rating of the restaurant in TripAdvisor is 4.5/5 stars and it has 1,192 reviews. Here is one of them:
“A friend of ours recommended this restaurant and as it was right next to where we were staying. The Cajun burger was amazing and the steaks are pretty good too, we ate here a few times during our stay and came away stuffed every time, definitely visit.” Source
Finance – Trying to sell the business
On April 3, 2017, the company announced that its financial advisor commenced a process to pursue the sale of the company. The new step taken in June, the bankruptcy, had the objective of accelerating the sale. Obviously, the sale may have been easy, as the company is not exactly a microcap. As of January 2, 2017, it employed approximately 7,000 employees, 112 Joe’s restaurants in 31 states, and 25 Brick House restaurants in 11 states. Additionally, the company shares were being traded in the NASDAQ until March 14, 2017. Let’s review the balance sheet. The following are the most significant accounts on the asset side as of January 2, 2017:
– Property and equipment, net: $129.324 million
– Total assets: $148.416 million
Additionally, on the liability side, we could find the following accounts:
– Long-term debt obligations: $117.806
– Total liabilities: $184.856 million
Regarding the ownership of the group, as of January 2, 2017, J.H. Whitney VI, L.P. owns approximately 66.1% of our total outstanding common stock.
What happened in the auction?
With all information in mind. According to different sources, Landry’s Inc. won the court auction that took place after the bankruptcy. The CEO of the buyer, Tilman Fertitta, who bought the restaurant group in 1994 and sold it in 2006, said the following about the transaction:
“We did not bid on Brick House, but because we had the largest combined bid, we bought Brick House. We’re excited to be able to bring back Joe’s to what it was once before: a very casual, fun seafood restaurant that serves a lot of crabs.” Source
Additionally, he noted that he may sell or close some restaurants and Brick House will be sold out as well. Finally, he promised that “Joe’s will get back to fundamentals of good service, hot food hot and cold food cold — and a fun time.”
In our opinion, the management of IRGTQ entered into bankruptcy to accelerate the sale of the business. The buyer is an old owner of the restaurant, and he is not a financial acquirer, which will be appreciated by the workers. The big question for common shareholders is what will be left once the purchase is complete. So far, it’s too early to tell. Most likely, shareholders will be left with nothing after all bills are paid. The recent activity looks to be some speculating on a payout once the process is complete.
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Disclosure: We have no position in IRGTQ and have not been compensated for this article.