A Montreal company known for mall food court and quick-service restaurant brands across Canada is set to buy a major U.S. player in the same sectors.
MTY Food Group, which owns or holds franchises for 40 brands including Mr. Sub, Cultures, La Cremiere, Extreme Pita, Country Style, Yogen Fruz, TCBY and others, announced Wednesday it has made a cash-and-stock deal to buy up the shares of Kahala Brands.
Scottsdale, Arizona-based Kahala franchises and operates 18 brands, including Blimpie, Pinkberry and Planet Smoothie, across about 2,800 stores in 25 countries, mainly in the U.S., generating over $950 million in sales per year.
The Kahala brands operating in Canada so far are ice cream chain Cold Stone Creamery and Mexican fast-food chain Taco Time.
MTY since 2008 has been the exclusive Canadian franchisee for Taco Time and operates about 124 Taco Time outlets in five provinces. The Taco Time chain has operated in Canada since 1978.
Cold Stone Creamery today operates about half a dozen Canadian stores in four provinces. It had held a higher profile in Canada by way of a 2009 co-branding deal with Tim Hortons, but the coffee-and-donut chain pulled the Cold Stone brand from its Canadian stores in early 2014.
Kahala said the merger deal gives its stakeholders about 2.25 million MTY shares and US$240 million (C$311.3 million) cash, which at MTY’s TSX stock price on Tuesday values Kahala at about $391.73 million.
MTY, whose own chains include about 2,800 stores, “had been searching for the right foundation for its U.S. expansion for the last three years, and it has finally found the perfect match,” MTY CEO Stanley Ma said in MTY’s release, calling Wednesday “one of the most important days” in his company’s history.
“The combination of the two companies’ portfolio and expertise will produce tremendous opportunities in Canada, in the United States and worldwide.”
Kahala CEO Michael Serruya, whose family holds controlling interest in Kahala, described the merger as being “in the best interests of all Kahala’s shareholders, our outstanding employees, franchisees, suppliers and the entire Kahala community.”
A merged MTY/Kahala is expected to generate over $90 million in EBITDA, $250 million in revenues and $2 billion in system sales across a portfolio of about 5,500 stores under 57 brands in the 12 months following closing.
MTY described Kahala’s operations as “a natural fit… given the similarity of the companies’ operations” with “a very scalable multi-brand franchised network.”
MTY said the deal also “solidifies its presence” in the U.S. as one of the main growth platforms for MTY brands already operating in the U.S., and for MTY’s Canadian brands.
The deal is expected to close within the next 75 days, after which MTY’s U.S. head office will be moved to Kahala’s headquarters in Scottsdale. — AGCanada.com Network