Acquisitive restaurant franchise group Famous Brands is entrenching its position in offshore markets, with the R2.1 billion acquisition of UK-based burger chain Gourmet Burger Kitchen.
The takeover of Gourmet Burger Kitchen is a game changer for Famous Brands, as it’s the biggest deal the company has concluded and will add scale to its business.
The market expected a chunky deal from Famous Brands, as its share price has jumped nearly 3% since issuing a cautionary on August 12.
Famous Brands – with juggernaut eateries in its stable such as Steers, Debonairs Pizza, Wimpy, Milky Lane, Fishaways and a throng of other convenience food chains – will fund the deal through cash and short-term debt.
Gourmet Burger Kitchen is a premium burger restaurant chain that was founded in 2001 and currently operates 75 restaurants across the UK. The restaurant operates in the fast-casual dining segment, offering eat-in and takeaway service, online deliveries and Gourmet Burger Kitchen branded food products in retail outlets.
Famous Brands’ strategic advisor responsible for M&A activity Kevin Hedderwick says the company has been on the prowl for international deals, but the weakness of the pound since the Brexit vote made its latest deal more compelling, as it has saved R700 million in the acquisition price. Negotiations for the acquisition of Gourmet Burger Kitchen have been in the making since early this year.
“Considering the amount of time we have be toing and froing in the UK, we were looking for a deal that would move the needle. Gourmet Burger Kitchen is not a small transaction but it’s quite big for Famous Brands,” Hedderwick tells Moneyweb.
Although Gourmet Burger Kitchen is the biggest deal the company has ever concluded in its more than 50 years of existence, it’s not its first foray into the UK market.
It has exposure to the UK through its casual dining restaurant Wimpy, which has more than 100 sites in service areas (football stadia, sports centres and other leisure venues) and has recently launched Steers in the region.
“As far back as 2007 when we acquired the Wimpy business in the UK, the Group is on record as saying that we would use our foray into the UK as a beachhead to expand our presence in the market as and when suitable opportunities presented themselves,” says Hedderwick.
Much of Famous Brands’ focus has been on growing its exposure to the casual and evening dining segment through acquisitions, successfully bulking up its back-end supply chain business and growing its presence in international markets.
On the latter, Gourmet Burger Kitchen will give Famous Brands a neat income stream with hard currency earnings. Hedderwick says the restaurant chain has managed to pull in same-store sales growth for five consecutive years despite the economic downturn.
Hedderwick says Gourmet Burger Kitchen has the capacity for more restaurants in the UK and in Ireland, where the restaurant chain has concluded an agreement to re-acquire the franchise rights to own and manage five restaurants in Ireland. “We could open 10 to 15 new restaurants per year.”
He says there is an opportunity to export the brand to South Africa by 2017, which would afford Famous Brands representation in the premium burger fast-casual dining category. It’s a competitive market, as its competitor Spur Corporation has thrown its weight behind RocoMamas, a start-up franchise venture specialising in freshly prepared burgers, to grow it.
Since Hedderwick handed over the reins to Darren Hele in February, more deals have been concluded, some of which include signing French bakery-café chain PAUL to become its South African licensed partner and the acquisition of Italian restaurant chain Lupa Osteria. In line with its quest for vertically integrating its business, Famous Brands recently acquired Lamberts Bay Foods, a producer of French fries and other potato-based products and a bankrupt tomato paste factory in the Coega precinct.