MTY Food Group buys BBQ Holdings for $200 million

(Montreal) After going on a pandemic-related slimming diet, MTY Food Group finally made an acquisition, getting its hands on BBQ Holdings for US$200 million.

Updated yesterday at 4:13pm.

Stephane Rolland
The Canadian Press

Investors were waiting for MTY Group to regain its appetite for acquisitions after a “long hiatus” as it grappled with the impact of the pandemic on the restaurant industry, says TD Securities’ Derek Lessard. “We believe investors will react well in anticipation of more transactions to be announced shortly. »

Based in Minnesota, BBQ Holdings operates casual eateries in 37 states in the United States, Canada and the United Arab Emirates. Its flagship brands operate under the Famous Dave’s, Village Inn, Barrio Queen and Granite City banners.

The network includes 200 franchise restaurants and more than 100 own restaurants. “BBQ Holdings is a very complementary network to that of MTY,” CEO Éric Lefebvre said in a statement on Tuesday.

BBQ Holdings’ offering adds welcome diversification to the Montreal-based company’s menu, which has more than 80 brands including Valentine and Sushi Shop, according to CIBC World Markets analyst John Zamparo. “This presence in informal catering will diversify MTY into a segment other than office and shopping centers, a segment that is disproportionately negatively impacting investor sentiment. »

With this acquisition, MTY strengthens its presence in the United States. After the transaction, it would have 3,900 branches nationwide out of a total of about 7,000, an increase of 9%. The proportion of sales generated in the US would increase from 58% to 66% of the company’s total sales.

The transaction would increase MTY’s earnings per share by 13%. With synergies, that increase could reach 20%, according to Zamparo. Prior to the transaction, BBQ Holdings expected it to post 2022 revenues of between $685 million and $725 million and earnings before interest, taxes, depreciation and amortization (EBITDA) of between $25.5 million and $27.5 million.

However, BBQ Holdings generates little internal growth, which is the growth of existing operations without accounting for openings and acquisitions. A situation similar to that of MTY, notes the analyst from CIBC World Markets. “The lack of organic growth at BBQ Holdings’ larger brands will lead to further questions on this topic, but we believe this is a strategic transaction on attractive financial terms. »

Mr. Lefebvre had already set the stage for this announcement last April when he told analysts that merger and acquisition activity in the restaurant industry was returning to normal.

In July, he said rising interest rates were urging a greater focus on paying down debt, which helped the company “save a lot of money.” “Nevertheless, we always prefer to make a good acquisition that we can add to our portfolio. It’s always a priority. »

In the afternoon, MTY shares on the Toronto Stock Exchange were up $2.48, or 4.25%, at $60.85.

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