Muscle Maker Grill Positioning For Growth Through Acquisition And Expansion

Source: Muscle Maker Grill

  • MMG raised $10 million via private placement.
  • MMG plans to open more locations.
  • MMG is likely to acquire complementary targets like superfit foods.

Muscle Maker, Inc. (GRIL) just announced its plan to raise $10 Million via a private placement with a lone U.S. institutional investor. While restaurant businesses are trying to find their footing, Muscle Maker has found the sweet spot that allows it to grow in any environment, pre and post COVID. Investors buying the recent dip in price could soon be rewarded with a paradigm-changing acquisition that puts the $10 million to good use and gets pricing on par with the smart money that just invested. The big question is: what will this cash be used for? In this article, we will show how the market misunderstood the above-the-market equity raise GRIL conducted, and how the company is poised for growth over the next year. It appears shares are significantly undervalued compared to other Quick Service Restaurant (QSR) brands.

Details of the Private Placement

The recent raise of $10 million included the issuance of 1.25 million shares of common stock, a pre-funded warrant to acquire 2.865 million shares of common stock, and a common stock purchase warrant to acquire 4.12 million shares of common stock exercisable at $2.43 per share.Due to the nominal $.01 exercise price of the pre-funded warrants it basically means that 4.12 million shares were traded for approximately $10 million which represents an above-market transaction at $2.43.Many restaurant businesses are on the brink as a result of the recent pandemic and the team at Muscle Maker believes this creates the perfect environment for acquisitions. Muscle Maker is evaluating opportunities and hopes to implement its business plan in the near future. If the remaining 4.12 million warrants at a strike of $2.43 with an expiration of 5.5 years were exercised in full by the investor, it would yield an additional $10 million in capital for the company. With shares trading way below the recent deal raise price, investors have the chance to participate in the fundraising with institutions. Many restaurant businesses are on the brink and that is a perfect time for money to strike. It's very obvious that GRIL is in acquisition mode based on how quickly this deal came together. The quick funding points directly toward a pending acquisition, and this speaks to the demand for their products and locations, as well as intense investor interest—it is quite uncommon for a raise like this for such a small company to be conducted just with one investor. When reading the tea leaves of GRIL’s corporate update, it's clear anacquisition is pending and might fit the parameters of an expandable business with a great brand of convenient food in the fitness and health market. The question is: what will their next acquisition be and what will it look like?

According to Muscle Maker’s Update:

“As mentioned in other filings, updates and press releases, Muscle Maker, Inc. will continue to be on the lookout for accretive strategic acquisitions. Our strategy continues to be to develop and grow the company using non-traditional approaches and locations to get healthy food in consumer’s stomachs. It is our intent to continue to organically grow by opening new strategic locations on military bases, universities, fresh-prepared meal prep delivery and ghost kitchens. However, we also believe an expedited way to drive revenue and performance is to acquire profitable strategic assets when possible. Our approach is to analyze companies we believe follow our philosophy of healthier eating while also being unique in how they operate. This can be via non-traditional locations or simply how they get food to consumers. We believe there will be multiple acquisition opportunities that will present themselves in the wake of Covid-19.”

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Disclosure: I do not have a position in this company but may take a position in the coming months.

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