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The Keg to merge into Swiss Chalet, Harvey’s parent

Cara's deal for steakhouse chain valued at $200 million

Major Canadian steakhouse chain The Keg is set to merge into Cara Operations, the parent for dining chains such as Swiss Chalet, Harvey’s, St-Hubert and Milestones, in a $200 million cash-and-stock deal.

The two companies said Tuesday a merger will afford them “synergistic opportunities in marketing, real estate and overall costs that will help further grow the Keg and Cara brands.”

Vaughan, Ont.-based Cara — which said it will change its corporate name “to reflect this new business composition” once the deal closes — will then add 106 Keg restuarants in Canada and the U.S. to its 1,259 other sites.

The Keg has 96 sites across all provinces except Prince Edward Island, plus 10 locations in the western and southern U.S.

The deal calls for Cara to pay Vancouver-based Keg Restaurants’ shareholders — majority owner Fairfax Financial Holdings and Keg CEO David Aisenstat — $200 million in all, of which $105 million will be in cash and the balance in Cara voting shares.

Cara also pledged up to $30 million more in cash if “certain financial milestones” are hit within the first three fiscal years after the deal closes.

The Keg Royalties Income Fund, which today gets a four per cent royalty on Keg restaurants’ gross sales in exchange for the use of Keg-related trademarks it owns, will “remain in its current form” and continue to collect Keg-related royalties after the merger.

Aisenstat is to remain with the merged company, become Cara’s vice-chairman and assume oversight also for three of Cara’s “higher-end casual” brands, The Bier Markt, the Landing Group and Milestones.

The Keg, the companies said, remains under Aisenstat’s leadership “without any change in management’s focus on the fund’s unitholders as key stakeholders in the business or the factors that have established The Keg brand’s leadership position and supported the consistent payment and growth of the royalty.”

Bill Gregson will remain as Cara’s CEO and president and as chairman of the Cara board, the companies said.

The Keg chain, which the two companies billed as “the leading full service restaurant chain in Canada,” today generates about $612.1 million in annual system sales and about $23.5 million in normalized earnings before interest, taxes, depreciation and amortization (EBITDA).

Cara, counting its deals in 2016 for the St-Hubert and Original Joe’s chains, said the deal will give it “best in class in full service, preeminence in the Quebec market with a strong retail capability and a strong western presence along with its historical strength in Ontario.”

Cara — whose other dining chains include Montana’s, Kelsey’s, East Side Mario’s, New York Fries, Burger’s Priest, Prime Pubs, State + Main, Elephant + Castle and Pickle Barrel — also said the deal for The Keg also puts it “on track to achieve the top end of its long-term (2020-22) system sales target.” — AGCanada.com Network

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