Joe’s back in Feritta’s control
Tilman Fertitta’s aggressive move to reclaim Joe’s Crab Shack succeeded in bankruptcy court in Houston, giving the local billionaire a second chance to wring a profit from the struggling chain.
U.S. Bankruptcy Judge David Jones on Thursday approved a bid by Fertitta’s company, Landry’s, to buy the distressed Ignite Restaurant Group, which also operates Brick House Tavern + Tap. Feritta’s growing restaurant and entertainment empire paid $57 million for both brands, a bargain price for a company once valued at $333 million.
“That’s an extraordinary deal,” said Jon Berke, middle markets editor for Debtwire. “They’ve been very opportunistic.”
The sale culminates a monthslong game of catand-mouse between two Houston companies that have long operated some of the region’s most wellknown restaurant brands. Distinct differences in luck and strategy sent them on divergent trajectories, rendering one the predator and the other the prey in the cutthroat hospitality sector.
Neither company responded to requests for comment.
The bankruptcy proceedings laid bare contentious negotiations that be-
gan in May, when Landry’s offered $60 million for a company that had been searching for a buyer since late last year. Landry’s eventually slashed the bid to $50 million, arguing that the two restaurant brands hadn’t performed well enough to justify more money.
Ignite’s attorney said in court filings that the company attempted to renegotiate, only to be snubbed by Fertitta when it suggested a higher price.
“The day I sold Joe’s Crab Shack was one of the happiest days of my life,” Fertitta allegedly said. “Good luck.”
Ignite then struck a $50 million deal with an affiliate of a San Diegobased private equity firm and filed for Chapter 11 bankruptcy protection in June to facilitate the sale. Landry’s soon appeared in court with a $55 million offer, arguing that Ignite had an obligation to shareholders to take the higher bid.
Crossed paths
Landry’s and Ignite first crossed paths in 2006 when Fer tit ta sold Joe’ s Crab Shack to Ignite through a private equity firm that paid $192 million for 120 restaurants. The chain, founded in Houston in 1991, formed the foundation of Ignite’s portfolio, which soon grew with the addition of Brick House Tavern+Tap.
At that point, the two companies competed in the arena with seafood joints and other casual restaurants, and each pounced on opportunities to acquire new chains. For Landry’s, that strategy proved hugely successful, but for Ignite, it created inescapable problems.
Landry’s had for years expanded by adding restaurants and casinos before Fertitta decided to take the company private by becoming its sole shareholder. Lawyers and regulators fretted over the deal before at last approving it in 2010.
Meanwhile, Ignite prepared to make the opposite move. It went public in 2012, reporting a $11.3 million profit the prior year.
It added another chain in early 2013, borrowing heavily to purchase more than 200 Romano’s Macaroni Grill restaurants in 36 states and abroad for $55 million.
‘Real trouble’
Problems arose almost immediately. The chain was losing customers, and by the end of that year, Ignite admitted that might not be able to reverse the trend.
“Honestly, it seems to me the first sign of real trouble was when Macaroni Grill became part of the company,” Berke said.
On top of that, Ignite encountered challenges facing the entire casual dining sector, which had been losing foot traffic to fast food and so-called fast casual restaurants. The company’s other restaurants began to decline, and it ultimately sold the Macaroni Grill chain in 2015 for $7.3 million, about an eighth of what it initially paid.
Landry’s, meanwhile, continued to diversify as Ignite faltered, adding higher-end restaurants and buying new casinos, including one from President Donald Trump. The company now operates more than 50 brands, including Landry’s, McCormick & Schmick’s and Morton’s The Steakhouse.
Last year, Landry’s took the No. 3 spot on the Chronicle’s annual list of the largest private companies based in the Houston area. The company reported $3.4 billion in revenue, up $100 million from 2015.
Ignite, on the other hand, never recovered. It reported a $44.3 million loss last year, and the Nasdaq Stock Market delisted the company’s stock earlier this year after its market value fell below the required minimum for trading.
During the bankruptcy hearings, Landry’s made its financial strength known, touting its track record and questioning Ignite’s business judgment. The company ultimately outbid several competitors at auction with an offer slightly higher than the one it first put forth in court.
In a statement, Landry’s said it might sell Brick House and revamp the Joe’s Crab Shack chain by cutting underperforming stores. It’s considering converting some of the locations into other Landry’s concepts.
“You have to credit smart, smart management at the end of the day,” Berke said .“Joe’ s should feel pretty good that Landry’s is their owner again.”