The owner of Valentine and Sushi Shop has announced the acquisition of Wetzel’s Pretzels. (Photo: The Canadian Press)
Montreal-based franchisor MTY Food Group is diversifying the content of its plate by paying more than usual to buy a restaurant chain with a higher growth profile.
The owner of Valentine and Sushi Shop announced Wednesday the acquisition of Wetzel’s Pretzels for US $ 207 million (M $), the equivalent of $ 284M.
With a strong presence in California and Arizona, Wetzel’s Pretzels operates more than 350 fast food restaurants specializing in pretzels, 90% of which are franchises. It is present in 25 states of the United States, Canada and Panama.
With this transaction, MTY gets its hands on a growing concept, notes John Zamparo of CIBC World Markets. “It’s a much needed vehicle for internal growth.”
Before the pandemic that rocked the restaurant industry, MTY had a reputation for expanding through acquisitions, but showing more modest growth for its existing business.
Wetzel’s sales grew at an annual rate of 12% between 2019 and 2021, Zamparo points out. “Most of the growth comes from comparable sales, although the number of plants has also increased at an annual rate of 1.5% since 2018.”
MTY CEO Eric Lefebvre said the transaction adds “another iconic brand” to the US and increases its presence in the snack market, in a statement.
The buyer, however, pays more than previous transactions, said Derek J. Lessard of TD Securities. “Management did not provide many financial details, but we believe they paid approximately 12 times the earnings before interest, taxes, depreciation and amortization (EBITDA). Unless the cost-elimination potential can be demonstrated, this multiple is at the high end of the range that MTY has paid in the past. “
Mr. Lessard views the transaction with a neutral eye due to the purchase price. For his part, Zamparo also points out that the transaction was carried out at a higher price, “but we find that it offers a higher growth profile than many old deals and diversifies the business beyond office towers.”
After following a lean diet due to the pandemic, this is MTY’s second acquisition this year. In August, the company announced the purchase of BBQ Holdings for $ 200 million, the equivalent of $ 257 million.
MTY is gaining weight in the United States and would reach nearly 4,200 outlets south of the border. The share of sales made in the United States therefore fell from almost 58% to 66% after the purchase of BBQ Holdings. This percentage would reach 70% after the conclusion of the Wetzel’s acquisition.
Management estimates the transaction will be completed within 30-45 days.
The stock closed the session up $ 3.43, or 6.03%, at $ 57.89 on the Toronto Stock Exchange.