In October, the Valley’s biggest restaurant company got even bigger. That’s when Cheesecake Factory Inc., with revenue of more than $2.3 billion in 2018, completed its acquisition of Fox Restaurant Concepts, a Phoenix-based group that opened 45 restaurants, including original brands North Italia, Flower Child and Zinburger, across nine states and Washington, D.C. The purchase cost the Calabasas restaurateur $308 million at closing plus an additional $45 million over the next four years for a total price of $353 million. The company financed the deal with cash and incremental debt. “There is so much alignment between our two companies as leaders in experiential dining,” Cheesecake Factory President David Gordon told the Business Journal via email days after the deal was first announced. “We share the same passion for operational excellence and have very similar cultures.” Test kitchen FRC continues to operate as a wholly owned subsidiary of Cheesecake Factory, serving as a testbed and development center for new brands. Sam Fox, FRC’s award-winning founder and chief executive, leads the branch from its headquarters in Phoenix. Being under Cheesecake’s corporate wing gives the 11-time James Beard Outstanding Restauranteur finalist a little more freedom to take creative risks regarding his dining concepts, menus and design. Ventures that show promise are then transferred to Cheesecake to be scaled up, according to a report from Restaurant Business Online. This deal didn’t come out of the blue. In 2016, Cheesecake Factory invested for a minority stake of Fox’s North Italia and Flower Child concepts for $88 million — $44 million for each brand — anticipating a future majority or full ownership acquisition of either or both concepts. North Italia is a full-service Italian concept with 21 locations in 10 states. Flower Child is a healthy fast-casual chain with 22 locations in nine states. This year, after successfully growing both brands, the companies reconvened to execute the acquisition of North Italia’s remaining interest. “As we were working through the planned integration, it became evident that the combination of our two companies, which are really two of the most experiential and entrepreneurial restaurant companies, could drive greater value as one organization,” said Gordon. Cheesecake Factory shelled out $130 million for the remaining stake of North Italia and $178 million at closing for FRC, including Flower Child. North Italia’s operations have since moved to Cheesecake Factory’s corporate support center in Calabasas. The company said it plans to open four or five North Italias in 2020, each of which generates about $7 million in annual sales, in addition to five Flower Childs and six Cheesecake Factories. David Tarantino, a restaurant analyst with Robert W. Baird & Co., wrote in a report: “With these new brands, Cheesecake Factory expects to achieve revenue growth of 8 percent annually on units plus 6 to 7 percent (with North Italia and Fox Concepts growing by 20 percent per year). … For 2020, Cheesecake Factory expects the acquisition to contribute roughly $450 million in aggregate revenue and roughly $70 million of incremental restaurant profit.” The report noted that pre-opening expenses and increased interest on the debt used to fund the transaction will offset revenue gains, meaning the acquisition likely won’t impact Cheesecake Factory’s earnings per share in 2020. Since closing, Cheesecake leveraged the acquisition to rewrite its contract with delivery service DoorDash, which now serves as the exclusive delivery partner for North Italia, Flower Child and Fox’s other brands. New terms were not revealed, but Chief Financial Officer Matt Clark told financial analysts the deal moves the margins for Cheesecake’s delivery line of business closer to that of it’s dine-in business. Off-premise orders account for about 16 percent of Cheesecake’s sales — and rising.
