The Acquisition details
MTY Food to acquire Kahala Brands for $300M (U.S.)
2016-05-25 09:20 ET - News Release
Mr. Stanley Ma reports
MTY ENTERS INTO AN AGREEMENT TO ACQUIRE THE SHARES OF KAHALA BRANDS LTD.
MTY Food Group Inc. has signed an agreement to acquire the shares of Kahala Brands Ltd. pursuant to the merger of a wholly owned subsidiary of the company with and into Kahala in accordance with the terms and conditions of such agreement.
Stanley Ma, chair of the board and chief executive officer of MTY, said: "This is one of the most important days in the history of MTY, being able to acquire a great portfolio of brands managed by among the very best people in the industry. MTY 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. The combination of the two companies' portfolio and expertise will produce tremendous opportunities in Canada, in the United States and worldwide."
Michael Serruya, chairman and chief executive officer of Kahala, said: "My brothers and I have known Stanley Ma for many years. He is an extremely competent, and professional chief executive officer, who successfully leads an outstanding company. The merger of Kahala and MTY in my opinion is in the best interests of all Kahala's shareholders, our outstanding employees, franchisees, suppliers and the entire Kahala community."
Transaction and rationale
Kahala currently franchises and operates approximately 2,800 stores worldwide, under 18 brands in 25 countries. Kahala's network generates annual system sales of over $950-million. Kahala's operations are a natural fit for MTY given the similarity of the companies' operations. Both companies operate a very scalable multibrand-franchised network, generate high earnings before interest, taxes, depreciation and amortization margins and maximize EBITDA conversion into free cash flows.
The acquisition of Kahala represents a major milestone for MTY as it solidifies its presence in the United States that will become one of the main growth platforms for MTY for the brands currently operating in the United States and for MTY's Canadian brands.
Kahala's head office is located is Scottsdale, Ariz. Following the transaction, MTY's U.S. head office will be moved into Kahala's current offices.
During the 12 months following the acquisition, the combined entity is expected to generate over $90-million in EBITDA, $250-million in revenues and $2-billion in system sales. The transaction is expected to be immediately accretive. The combined entity will have a portfolio of approximately 5,500 stores under 57 brands.
"Combining the best of both companies and the knowledge and weight of each company in their respective markets is expected to yield significant acceleration in the growth of the combined business in North America and worldwide," commented Mr. Ma.
Conditions and regulatory approvals
The agreement is binding but remains subject to multiple conditions, including standard regulatory approvals (including Toronto Stock Exchange approval), financing and other conditions customary for a transaction of this nature.
Financing
Total consideration for the transaction is estimated at $300-million (U.S.), satisfied by the issuance of 2,253,930 shares of MTY and the payment of $240-million (U.S.) in cash. The final purchase price remains subject to customary working capital adjustments. The cash component of the consideration will be financed by MTY's cash on hand and by the new credit facility that is presently being arranged. TD Securities will act as the sole lead arranger and bookrunner for a syndicate of lenders. The new credit facility is expected to provide enough flexibility for MTY to complete additional acquisitions in respect of future opportunities that might become available to MTY and continue to pay and adjust its dividend in accordance with its dividend policy.
Closing of the transaction
The closing of the transaction is expected to happen within the next 75 days. There is no assurance the transaction will be completed as described above or at all, or that the anticipated closing date will materialize.