Fogo de Chão (Nasdaq: FOGO) is being acquired in an all-cash transaction valued at $560 million, the Dallas company announced Tuesday.
The Brazilian-style steakhouse chain has entered into an agreement to be acquired by entities affiliated with New York investment management firm Rhône Capital. Under terms of the deal, Fogo shareholders will receive $15.75 per share, a 25.5 percent premium on the company’s Feb. 16 closing price of 12.55.
The acquisition is expected to be completed by the second quarter, pending regulatory approvals and other customary closing conditions. Fogo’s board of directors, which underwent a “comprehensive strategic alternatives review process” before entering the deal, has already unanimously approved Rhône’s purchase.
Funds affiliated with Thomas H. Lee Partners LP, as well as certain Fogo directors and executive officers, who collectively own 60 percent of Fogo’s shares, have also submitted written consent of the deal.
“After a thorough evaluation of the options available, the board of directors is confident that this transaction will provide Fogo a significant opportunity to realize the highest value for our stockholders while providing the best path forward for the Fogo de Chão brand, employees and loyal customers,” Larry Johnson, Fogo’s CEO, said in a prepared statement. “We are excited to enter into a new chapter for the company and confident that Rhône will be an invaluable partner as they have a proven and distinguished track record of supporting and driving profitable growth for companies around the world.”
Investors are celebrating the deal, sending Fogo’s shares up more than 25 percent as of 9:30 a.m. Tuesday. With Friday’s closing price of 12.55, the stock is trading down nearly 13 percent over the past 12 months.
Fogo’s buyout comes less than three years after the company went public in June 2015. Its initial public offering brought in $88 million, with shares priced at $20.
Proceeds went to pay down company debt. In 2016, Johnson told the Dallas Business Journal that the company’s restaurants were lucrative enough that it didn’t need the IPO to fuel expansion.
The restaurant chain’s purchase by Rhône is set to further spur Fogo’s international and domestic development. The company has 38 locations in the U.S. and nine in Brazil. It also has two joint venture restaurants in Mexico, one in Saudi Arabia and one in Dubai.
Fogo operates its joint venture restaurants with partners in the eateries’ respective markets. The partners provide capital to build and operate the restaurants, and then recoup their investment by collecting all of a restaurant’s initial profits. After that, profits are split 50/50 between the partner and Fogo.
Partners also pay Fogo a trademark royalty of 2.5 to 3 percent.
“We look forward to collaborating with Fogo and its talented management team to continue the growth of this exceptional business,” Eytan Tigay, managing director of Rhône, said in a prepared statement. “We believe our firm’s global experience, relationships, and longstanding and expanding presence in Brazil is a natural complement to the Company and will serve to facilitate Fogo’s domestic and international expansion plans.”
JP Morgan Securities LLC served as financial adviser and Sullivan & Cromwell LLP served as legal counsel to the investment firm with the deal.
Jefferies LLC acted as Fogo’s financial adviser, while Davis Polk & Wardwell LLP and Weil, Gotshal & Manges LLP served as it legal advisers.