[Obadno]

Seems everyone is asking the same questions about cheescake:

After news broke July 31 that the Cheesecake Factory Inc. was acquiring Phoenix-based Fox Restaurant Concepts, the chatter on social media instantly became “How will this impact my favorite Sam Fox restaurant?”

So far, Cheesecake Factory executives are giving an answer most people want to hear: Nothing is going to change.

“We want to keep their concepts very much the way they are and not 'Cheesecake-ize' them in terms of what they are offering guests,” Cheesecake Factory CEO David Overton, said during a call with investors July 31. “That is our plan for the future as of now.”

Overton and the Cheesecake Factory team began working with Fox Restaurant Concepts CEO and founder Sam Fox in 2016 when the company made minority investments into two of FRC’s concepts – North Italia and Flower Child – with the intent to slowly acquire a majority share of them.

Instead, it seems that Fox impressed the team at Cheesecake so much, they just wanted to buy the whole company.

“As we’ve got to know Sam and his team, we’ve been very impressed with their concept curation, menu innovation, commitment to hospitality, eye for design and importantly, business discipline,” Cheesecake President David Gordon said. “In turn, we believe Fox Restaurant Concepts is the ideal incubation engine to develop concepts of the future.”

For now, Fox and his team in Phoenix will still be tasked with coming up with new restaurant concepts and perfecting the ones they are already operate. But at the same time, Cheesecake is going to keep a close eye on what is happening at FRC.

“Over time, as Sam continues to create, if there are concepts that we believe would be great to scale nationally, we’ll talk about those together as a team and if and when that time comes, we would think about having that fall under Cheesecake Factory umbrella and then scale nationally,” Gordon said.

Cheesecake is already doing that with Fox’s North Italia brand, which serves Italian fare and focuses on an upscale casual dining segment. North’s management teams and operations will move to Cheesecake headquarters in Calabasas Hills, California.

The one word Cheesecake executives made sure they did not use when talking about the FRC acquisition was "synergy."

"This is not about a synergy situation," Cheesecake CFO Matthew Clark said during the conference call. "We are also maintaining Sam's team in Phoenix as a stand-alone entity so that we don't disrupt that."

With that mindset, the deal seems like a huge win for Fox. Not only was the company purchased for $308 million, plus an extra $44 million over the next four years, he still gets to invent new brands with a license to be creative and backers who want to help him grow.

In a statement, Fox said the Cheesecake Factory made the most sense as a buyer because it is willing to “embrace our creative spirit, enabling us to innovate concepts, while providing the infrastructure and capital to scale.”

Setting aggressive growth targets
It also made sense for Cheesecake because FRC is a “very profitable business,” that brings in an annual revenue of $250 million and is going to grow, Clark said.

“There is potential for 20% annual unit growth for their aggregate portfolio,” Clark said. “The combined company is expected to be an experiential dining category leader, with nearly $3 billion in pro forma revenues in 2020 and anticipated 8% plus revenue growth.”

So far, the acquisition is getting mixed reviews among Wall Street analysts. Brian Vaccaro, an analyst for Raymond James wrote in a note to investors that for Cheesecake Factory, "the main concepts targeted in the acquisition are ‘on-trend,’ high-return-on-investment growth vehicles that significantly enhance the company’s long-term growth potential."

On the other side, Jon Tower from Wells Fargo kept his "market perform" rating on Cheesecake shares but lowered his target price from $47 to $46, citing the company's "spotty history of M&A for restaurants in the public markets." Still, Tower said the FRC acquisition differs from the Grand Lux Cafe or RockSugar Pan Asian Kitchen, because Cheesecake and Fox have a history together.

That sent Cheesecake shares lower on Friday, with the stock down $1.88, or 4.2 percent, to $42.36. Track the stock here.

That existing relationship is particularly important when analyzing this deal, said Sarah Strunk, a Phoenix-based mergers and acquisitions attorney and the chair of the board of directors at law firm Fennemore Craig. Having that background together will probably keep Fox in his role at FRC following the acquisition.

“Many founders do not last long in that role, but they have a relationship already,” Strunk said. “[Fox] is one of the most creative and prolific restaurateurs in the upscale-casual space. It is no surprise they’d want him to stay.”