Reuters — Cara Operations, owner of the Swiss Chalet casual dining chain and Harvey’s burger outlets, said Thursday it will buy St-Hubert BBQ, one of Quebec’s largest casual dining chains, for $537 million to gain a foothold in the province.
The deal, expected to close this summer pending regulatory approvals, was cheered by analysts and investors. Shares in Vaughn, Ont.-based Cara, which went public a year ago, closed 9.4 per cent higher at $29.15 on the TSX.
“Given the potential synergies that exist, not only on the cost side but also on the top-line, we believe Cara has only increased its positioning as the dominant restaurant operator in Canada, and as an attractive consolidator going forward,” said Canaccord analyst Derek Dley, in a note.
Cara, Canada’s largest operator of full-service restaurants, had indicated it was looking to expand through acquisitions. And analysts had flagged privately-held St-Hubert as one of the most likely targets for Cara, which is controlled by dealmaker Prem Watsa’s Fairfax Financial Holdings.
Swiss Chalet and St-Hubert are both well known for their rotisserie chicken meals, but the two chains share little geographic overlap.
Of St-Hubert’s 117 restaurants, 108 are in Quebec, where Swiss Chalet does not have a presence. The remainder are in eastern Ontario and New Brunswick.
St-Hubert also operates food processing plants at Boisbriand and Blainville, Que. and distribution centres at Boisbriand and Anjou, Que.
About two thirds of its food processing sales are to “external” customers such as grocery chains, while the other third is in “internal” sales to the company’s restaurant network.
“There’s no retail to speak of really right now in Cara, and this team and the facilities they’ve got in Quebec are perfect for us and Quebec was the province we were most under-penetrated within, so we can use this to build not only more St-Hubert’s in Quebec, but other restaurants too,” said Fairfax president Paul Rivett.
Cara has said it wants to boost revenue to $2.5 billion-$3 billion in five to seven years, up from $1.7 billion in 2014.
The acquisition of St-Hubert is expected to move Cara much closer to that target. The Quebec firm’s restaurant and food processing businesses booked about $403 million and $225 million in 2015 sales respectively.
The deal also gives Cara an opportunity to expand its offerings through grocery chains, including Loblaw, Costco and Metro, where St-Hubert sells products such as marinades, pot pies and seasonings.
St-Hubert Group CEO Jean-Pierre Leger said the deal will also create jobs in Quebec, “since it will enable us to carry out major expansions of our food manufacturing facilities and sales throughout Canada.”
The provincial opposition Parti Quebecois, Coalition Avenir Quebec and Quebec Solidaire parties lined up Thursday in separate releases to criticize the deal, framing the Ontario firm’s investment as evidence of an unfavourable economic climate in Quebec.
But the province’s poultry producer association, les Eleveurs de volailles du Quebec (EVQ), predicted Thursday it will be business as usual for farmers supplying the St-Hubert operations.
Quoted by La terre de chez nous, the journal of Quebec’s Union des producteurs agricoles (UPA), EVQ president Pierre-Luc Leblanc said current farmer-suppliers already have unique expertise in providing birds to the rotisserie chain’s exact specs (2.25 kg each).
St-Hubert alone is the market for about 3.3 per cent of the 175 million chickens produced each year in Quebec, the EVQ said.
Cara, whose brands also include the Milestones, Montana’s, Kelsey’s, Bier Markt and East Side Mario’s restaurant chains, said it plans to fund the deal through a credit facility, raised to $700 million from $150 million.
It also said it will consider offering shares to eliminate or reduce the need for a two-year term loan, which is part of the credit facility.
— Reporting for Reuters by Euan Rocha in Toronto and Amrutha Gayathri in Bangalore. Includes files from AGCanada.com Network staff.