The Golden, Colo., hamburger chain announced Wednesday that it hired Heathcote Capital LLC to look at strategic alternatives, particularly potential acquisitions.
Unlike most companies on the hunt for acquisitions, Good Times' new appetite for dealmaking is not the result of excess cash in its coffers.
Industry sources said Good Times is looking for deals -- no more than two or three restaurants -- to strengthen its balance sheet.
"They have been exploring deals for a long time," one restaurant banker said. "They are very small and have limited capital resources, so any deal has a lot of complexity. They either need to find a company that will take their stock -- which is very illiquid -- or they will have to do a major refinancing transaction in connection with an acquisition."
Good Times operates 43 restaurants on the West Coast. Its stock was trading up 1%, to $1.16, on Thursday afternoon, giving it a market capitalization of about $3.2 million.
For the trailing 12 months ended Sept. 30, Good Times reported a loss from operations of $665,000 on $20.6 million in revenue, compared to a $1.9 million loss and $20.8 million for the same time period in 2010. As of Sept. 30, Good Times had accumulated $17.7 million in losses since 1999, according to filings. Good Times CEO Boyd Hoback noted that an acquisition can accelerate the time frame of the company becoming profitable down to the next 12 months or less.
Good Times had $847,000 in cash as of the end of 2011. The company reduced its long-term debt from $3 million in 2010 to nearly $2 million in 2011.
Because of Good Times' small size and the even smaller size of acquisitions it will be looking for, industry sources are uncertain of likely acquisition targets for the company.
Hoback said in a Thursday phone interview that the company is not limiting itself to acquiring burger chains in the Western region, but is looking at all segments of the restaurant sector across the U.S.
Hoback has not ruled out the possibility of partnering with a private equity firm to look for deals. He declined to provide further details.
In its 2011 annual report, Good Times said increased food prices, competition and reduced consumer spending all had a negative impact on its sales, as it had on several restaurant chains during the recession. The company lists fast-food conglomerates such as McDonald's Corp., Wendy's Co., Burger King Worldwide Holdings Inc., Sonic Corp. and Jack in the Box Inc. as some of its competitors.
Although Good Times was able to cut its losses from last year by rolling out new products, increased marketing and implementing a $1 menu, one industry banker called the company's finances a "mess of a situation."
Good Times' latest strategy is a reversal from more than two years ago, when it hired Mastodon Ventures Inc. in August 2009 to seek buyers. That process was completed at the end of 2010 and resulted in Small Island Investments Ltd. buying a majority stake in Good Times, or 4.2 million shares, for $2.1 million.
Good Times was unable to complete an outright sale at the time because it had too much debt and high valuation expectations, according to industry sources.
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