Press release
Cara Operations Limited announced on September 1 that it has entered into a transaction to acquire a majority ownership interest in Original Joe’s Franchise Group Inc. for $93 million. $90.0 million of the $93.0 million purchase price will be used by Original Joe’s to re-acquire its trademarks and royalty rights from Diversified Royalty Corp. Original Joe’s franchises and operates 99 full-service restaurants in Canada and the United States across three brands – Original Joe’s Restaurant & Bar, State & Main Kitchen Bar and Elephant & Castle Pub and Restaurant. The Transaction will allow Original Joe’s to retain approximately $12.6 million in annual royalty payments currently paid to DIV. With these retained royalties and anticipated synergies, Cara’s management expects its purchase multiple for the Transaction to be below 7x Normalized Operating EBITDA. This Transaction will be accretive to Cara on an EPS basis.
Derek Doke, President and Chief Executive Officer of Original Joe’s, commented, “The decision to unwind our royalty relationship with Diversified was difficult; however, the opportunity to partner with Cara was attractive from a strategic and synergistic perspective. We are pleased to come to terms with both Cara and Diversified on an arrangement that serves all three parties’ interests.” Mr. Doke added, “This transaction brings positive possibilities for the Original Joe’s business as well as for our associates and franchise partners.” The Original Joe’s head office will continue to be located in Calgary, Alberta and existing management will remain in charge of Original Joe’s business, leveraging Cara where possible.
Cara’s Chief Executive Officer, Bill Gregson, commented, “With its proven restaurant-pub concepts and its understanding of the casual, full-service foodservice space, Original Joe’s is a natural fit for Cara. The majority of Original Joe’s restaurants are located in Western Canada, an area where Cara is currently under-represented. With our acquisition of Quebec-based St-Hubert, soon to close, Cara’s business and restaurant network will now have greater geographic distribution across all of Canada”. Mr. Gregson added, “The Original Joe’s partnership also provides us with an opportunity to combine our scale for cost savings and rely on a proven management team headed by Derek. Derek and his existing management team will continue to have ultimate responsibility for running Original Joe’s.” Derek Doke has worked as an executive in the restaurant and hospitality sector for 25 years – he founded his management company Franworks Franchise Corp. in 2000 through which he has overseen the growth of Original Joe’s from two locations to 99 locations, across three banners.
Original Joe’s 99 restaurants generate approximately $250 million in annual System Sales and approximately $14.7 million in Normalized Operating EBITDA before synergies (after factoring in the cancellation of top-line royalty payments to DIV.). When the St-Hubert transaction closes, Cara’s total System Sales will increase approximately $630 million from $1.84 billion (for the 12 months ended June 26, 2016, adjusted for a full year contribution from New York Fries) to $2.5 billion. With the further addition of Original Joe’s, Cara’s annual System Sales are expected to be approximately $2.7 billion. With the addition of 117 restaurants from the St-Hubert acquisition, Cara will have 1,120 restaurants in its network – this number grows to 1,219 restaurants with the addition of 99 restaurants from Original Joe’s.
Cara will fund its $93.0 million investment in Original Joe’s by drawing on its credit facility. Closing of the Transaction is subject to customary conditions, including the receipt of relevant regulatory approvals. The transaction is targeted to close in late 2016.
About Original Joe’s Franchise Group Inc.
Founded in 2000, Original Joe’s a multi-brand restaurant company based in Calgary, Alberta. As at June 26, 2016, Original Joe’s had 99 restaurants, comprised of 66 Original Joe’s, 23 State & Main and 10 Elephant & Castle locations. 1 State & Main and 6 Elephant & Castle locations are located in the United States – Original Joe’s remaining 92 locations are located in Canada and predominantly in Western Canada. Of the 92 Canadian locations, 19 are in British Columbia, 51 are in Alberta, 8 are in Saskatchewan, 5 are in Manitoba and 9 are in Ontario. Of Original Joe’s 99 total locations, 20% are franchised, 44% are corporately-owned and 36% are partially owned as a joint venture with owner-operators. Original Joe’s also owns and operates a company that specializes in commercial retail/restaurant construction with a strong emphasis on design-build, utilizing an in-house design department.
About Cara
Founded in 1883, Cara is Canada’s oldest and largest full-service restaurant company. Cara franchises and/or operates restaurant brands that include Swiss Chalet, Harvey’s, Kelsey’s, East Side Mario’s, Montana’s, Milestones, Prime Pubs, Bier Markt, New York Fries and Landing restaurants. As at June 26, 2016, Cara had 1,003 restaurants, 958 of which were located in Canada and the remaining 45 locations were located internationally. Of Cara’s 1,003 restaurants, 88% are operated by franchisees and 65% are based in Ontario. Cara is a publicly traded company whose shares trade on the Toronto Stock Exchange under the ticker symbol CAO. More information about the Company is available at www.cara.com.
