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Famous Brands beefs up with GBK acquisition

R2.1 billion for the largest acquisition in the group’s history.

NASTASSIA ARENDSE: Famous Brands’ latest acquisition and the largest in history is a UK chain, Gourmet Burger Kitchen, for £120 million. The company is already active in the UK via Wimpy, the group has announced a string of deals since its former CEO, Kevin Hedderwick, switched roles to group strategic advisor responsible for mergers and acquisition activity, he joins me now on the line. Kevin, thank you so much for your time.

KEVIN HEDDERWICK: Pleasure, Nastassia.

NASTASSIA ARENDSE: Now I’ve read your results and some of the interviews I have listened to and read you talk about how you see the UK as a strategic growth region, what about Gourmet Burger Kitchen was attractive to you?

KEVIN HEDDERWICK: Besides the fact that it does give our group the opportunity to earn hard currency offshore and if you look at the brand itself it operates in a category where there’s growth. The brand itself is a market leader in that category and it has potential to scale up and we are confident about our ability to open 10 to 15 new GBKs a year. Notwithstanding the Brexit setback the brand continues to return industry-leading like-for-like growth and I think a very important issue for us is the fact that there is a phenomenal team that have taken Gourmet Burger Kitchen to where is today from 2010 when it was acquired by Yellowwoods and we’ve been able to retain that leadership team going forward. So besides the commercial hurdles we like to get through, the brand certainly ticks all the boxes we would look at.

NASTASSIA ARENDSE: In terms of your participation in working on the deal, if you don’t mind me asking, how long were you involved in that entire process and to what extent did Brexit work to your advantage?

KEVIN HEDDERWICK: We’ve probably been in conversations for about five or six months but then it gained probably a lot more momentum in the last three months. When we started the conversation the rand/pound was about R22 or R23, when we’ve done the transaction and we’ve hedged it at R17.53, so theoretically we’ve saved ourselves probably R700 million, R800 million.

NASTASSIA ARENDSE: So in terms of the strategic growth that you see for the UK, say for instance in the next few years, how much of your revenue do you anticipate to come from outside of South Africa?

KEVIN HEDDERWICK: Once we’ve integrated the business and its been trading for a full 12-month period it will probably contribute anywhere between 20% to 23% of our turnover.

NASTASSIA ARENDSE: People say you’ve got a great eye for brands and in terms of acquisitions you are really great at that stuff, what do you look for when you are looking for something to either form part of Famous Brands or what attracts you?

KEVIN HEDDERWICK: That’s a nice compliment, thank you very much. I think especially on the brands side is what we are looking for really is that is the brand participating a category where there is growth, is the brand best in its class or if Famous Brands were to overlay our system over it could we make it best in the class, is the brand scalable, which is very important because we have to be able to ratchet it up to unlock value going forward and then ideally what you want to do is make sure that the brand has got in place a very strong management team. So those are the kinds of topline criteria that I would look for. Besides, of course, the value, are you going to get in at a reasonable hurdle rate financially, so that the commercial case makes sense

NASTASSIA ARENDSE: In terms of expansion for Gourmet Burger Kitchen now that you’ve acquired it, what happens next, how many restaurants do you see yourself opening in the next year or so?

KEVIN HEDDERWICK: Together with the management team, I’ve had the pleasure of meeting them on two occasions now, we’ve looked at the business in terms of what we think the blue sky or white sky space is, what they call it over there, for the brand is. We collectively believe that there is run rate of about ten to 15 restaurants a year that we can open in the UK and Ireland and so hopefully in five years’ time we are talking about a GBK business that’s about 150 restaurants-strong.

NASTASSIA ARENDSE: And because we love to have a taste of everything you bring into South Africa is there a chance that you might bring Gourmet Burger Kitchen to South Africa for us to have a taste of some of those good burgers. I had a look at their menu earlier today and they look really great, are you planning on bringing at least one or two of them to South Africa?

KEVIN HEDDERWICK: The product is outstanding in terms of burgers, fries and milkshakes I reckon it’s probably the best in the world. So that’s one of the criteria that we would look for with regard to an investment in an offshore brand is does it have exportability and certainly in terms of GBK we believe it has. So GBK will be coming to South Africa, not in the immediate future but certainly in the not too distant future South African consumers will be able to have a taste of GBK.

NASTASSIA ARENDSE: While we’re on the topic of it coming to South Africa, I know there is a lot…there is RocoMamas that does gourmet burgers and if you go to Parkhurst you’ll find a few spots that do gourmet burgers as well. What normally goes well with a gourmet burger is craft beer, do you think that when you do bring Gourmet Burger Kitchen to South Africa you’d have to partner up with one or two individuals that do craft beer in South Africa?

KEVIN HEDDERWICK: There’s no question about it. Over there GBK has help itself out as a craft-type brand and that theme of craft is run right through the business, whether it’s the burger, the patty, the fries, the milkshakes, even craft beer. So craft beer is a fundamental point of difference to the brand over there and when we bring GBK back to South Africa we’ll be looking to partner with a craft beer operator in South Africa as well, it’s part of the fabric of the brand.

NASTASSIA ARENDSE: I was talking to you earlier about the menu, so I’m going to put you on the spot here which one of the meals in your favourite?

KEVIN HEDDERWICK: How fortuitous is this because what they have on the GBK menu over there, which is a phenomenal product, it’s called a Taxi Burger. So fancy that in South Africa, a Taxi Burger, it will go well.

NASTASSIA ARENDSE: Kevin, we’ll leave it there. Thank you so much for your time.

KEVIN HEDDERWICK: It’s a pleasure, thank you.

NASTASSIA ARENDSE: That’s Kevin Hedderwick, he’s group strategic advisor responsible for mergers and acquisition activity at Famous Brands.

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