Montreal franchisor Foodtastic thinks the Freshii brand, shaken by the pandemic, will be able to grow further in its lap. The company has the ambition to make other acquisitions soon, said its big boss, in an interview.
Foodtastic announced earlier Monday an arrangement agreement to acquire the chain of 343 fast-food restaurants, which serve salads and bowls, for “approximately” $74.4 million, or $2.30 $ per share. This is a premium of 142% over last Friday’s closing price.
Freshii’s comparable sales were down almost 30% from their pre-pandemic threshold, considering that many of its stores are near office buildings.
A major advantage
Foodtastic President and CEO Peter Mammas believes Freshii can return to growth. “It’s a very good brand,” he said in an interview. We have done studies on this with customers and franchisees. We believe that with our experience and our size, we can bring good things by growing the brand and doing more in marketing. »
Foodtastic has already given a second wind to other brands in difficulty. Mr. Mammas gave the example of the Second Cup chain acquired in 2021. “When we bought Second Cup, comparable sales were down 60% compared to 2019, he says. Now we’re down 8% from 2019, but sales are up 20% from last year. »
Thanks to its size, Foodtastic has better bargaining power with suppliers and property owners than an independent chain, according to the leader. “We have an internal team that takes care of advertising. It takes costs away. »
Adjustments to Freshii’s menu are also being considered. “We have ideas to make the menu a little more up to date,” added Mr. Mammas. Freshii is a leader in health food and I believe there is great potential for growth in this sector. »
The acquisition comes as Freshii management said it saw signs of a possible recovery in areas near office towers. More workers frequent their workplace “particularly in the middle of the week”, she noted.
Analyst Derek Dley, of Canaccord Genuity, also judged, in a note published in November, that the year 2023 of Freshii was announced under better omens. He noted that plans to open the company were beginning to materialize and that more workers were working face-to-face.
“While we expect same-store sales to remain under pressure in the near term, we believe the capital-light business model, cash flow generation and healthy balance sheet, combined with a low share price, make the company attractive to investors willing to ignore short-term volatility,” commented the financial analyst, before the transaction was announced.
Other acquisitions on the menu
This is the largest acquisition in the history of Foodtastic, which owns brands such as Rotisseries Benny, Au Coq as well as La Belle and La Boeuf.
In 2021, Foodtastic announced the acquisition of Second Cup for $14 million. The same year, it also bought the Pita Pit and Milestones brands.
In early December 2022, it announced the acquisition of Quesada Burritos Tacos, which has 175 locations. Including the recently announced acquisitions of Quesada and Freshii, Foodtastic’s Canadian network exceeds 1,200 restaurants and $950 million in sales.
In mid-December, the company announced it had secured a $175 million credit facility. This sum will allow it to finance the acquisition of Freshii, as well as “three or four” other acquisitions.
“We are already in discussions with other names,” said Mr. Mammas. We are not going to stop making transactions. Four weeks ago, we were at $750 million in sales in Canada. By March, we will be at 1 billion. In 36 months, we want to be at 1.5 billion. »
One of the benefits of the credit facility is that the amount that can be borrowed is tied to the size of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA), the executive said. In other words, as the company grows and generates more profits, it could borrow more to finance other acquisitions.
The acquisition of Freshii must be submitted for shareholder approval by the end of the first quarter of 2023. The agreement is conditional on shareholder support and regulatory approvals.