Grand Parade Investments, which holds the Burger King franchise in South Africa (BKSA), has announced that it will sell its entire stake in the business to Emerging Capital Partners (ECP).
Since the announcement, the share price has risen 9.09% to R3.60.
Grand Parade holds 95.36% of the shares in Burger King and acquired the master franchise rights in 2012. It says it will also sell its wholly-owned Grand Foods Meat Plant, which supplies burger patties to BKSA and other businesses, to ECP.
The sale price in the binding offer will be based on BKSA’s enterprise value, or R670 million based on a ratio of eight times forward earnings before interest, taxation, depreciation and amortisation.
The restaurant chain exceeded R1 billion in turnover in 2019 – a first since opening its doors in 2013.
Grand Parade CEO Mohsin Tajbhai says the group believes the market undervalued BKSA.
“Our focus last year was to restructure the business and to improve the profitability of our operational food businesses, which we succeeded in doing,” he says. “At the same time, we took a strategic decision to reduce our operational involvement in BKSA, and solicited offers from various interested firms.”
Tajbhai says the offer from ECP exceeded an independent valuation done on the business.
“Based on this, the board felt that it was necessary to recommend the offer from ECP. We are proud of what we have built in this incredible brand in South Africa, and are excited to hand the baton to ECP, who are experienced investors in the African restaurant and consumer space.”
In the year to June 30, BKSA had 92 restaurants with a total of 18.6 million customers served, compared with 15.6 million in the prior year, according to its results statement released in September.
ECP said in the statement that it had raised $3.2 billion (R48 billion) in capital, and had completed more than 60 transactions.
Investment analyst and market commentator Chris Gilmour says BKSA put up a good fight but is unfortunately a victim of a weak economy.
“It has not been around long enough and I reckon they needed approximately 150 [restaurants] to break even. [Despite that] I think it did well and there is always going to be a tough call during this economic climate.”
Gilmour believes that if the economy was stronger and Grand Parade had been able to be patient for a few more years they would have succeeded in building a stronger brand.
“Unfortunately, it is the victim of this economy because consumers are very cash-strapped,” he says, adding that the current economic climate makes things challenging for foreign franchise holders.
“When you have a franchise in dollars and you are earning rands, the exchange rate can make things difficult.”
Last year, Grand Parade closed its Dunkin’ Donuts and Baskin-Robbins franchises in South Africa after failing to find a buyer and reporting them as loss-making.