Chain restaurant firm Cara Operations is set to buy a bigger presence in Canada’s West, with a deal for control of the Original Joe’s, State + Main, and Elephant + Castle pub-style restaurant chains.
Cara, whose other chains in North America include Swiss Chalet and Harvey’s, announced last week it will pay $93 million for a majority ownership stake in Calgary-based Original Joe’s Franchise Group Inc., a subsidiary of Franworks Franchise Corp.
Of that sum, Original Joe’s plans to use $90 million to “re-acquire” the three chains’ trademarks and royalty rights from Vancouver-based Diversified Royalty Corp. (DIV), whose other trademarks in Canada include real estate brokerage chain Sutton and auto service chain Mr. Lube.
The deal is expected to close late this year, pending TSX and federal Competition Bureau and approvals, among other typical conditions being met.
“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,” Original Joe’s CEO and Franworks founder Derek Doke said in a release from Vaughan, Ont.-based Cara.
Doke, who launched Franworks in 2000 with two Original Joe’s restaurants, said the three-way deal relieves the parent firm of about $12.6 million in royalty payments to DIV per year, thus putting Franworks in a “solid financial position.”
Given the recent decline in crude oil values, DIV CEO Sean Morrison said the company felt Franworks’ “large Alberta-based restaurant exposure has put pressure on Franworks under its royalty structure,” which in turn could have had “a negative long-term impact” on DIV.
As of June 26, Original Joe’s operates 99 restaurants, include 66 Original Joe’s, 23 State and Main and 10 Elephant and Castle locations. Of the 99, 51 are in Alberta, 19 in British Columbia, nine in Ontario, eight in Saskatchewan, five in Manitoba and seven in the U.S.
The Original Joe’s head office will stay in Calgary under its existing management, the company said, “leveraging Cara where possible.”
Cara’s other dining chains include Kelsey’s, East Side Mario’s, Montana’s, Milestones, Prime Pubs, Bier Markt, New York Fries and Landing.
“The majority of Original Joe’s restaurants are located in Western Canada, an area where Cara is currently underrepresented,” Cara CEO Bill Gregson noted.
Cara, which last Friday also closed on a $537 million deal to buy Quebec rotisserie chicken dining chain and processor St-Hubert, “will now have greater geographic distribution across all of Canada,” Gregson said.
The Original Joe’s deal, he added, “provides us with an opportunity to combine our scale for cost savings and rely on a proven management team” led by Doke.
For its part, DIV’s Morrison said the company will use $15 million from the deal’s proceeds to pay down debt, leaving it with $75 million “to acquire additional royalty streams from growing, multi-location businesses and franchisors.” — AGCanada.com Network