Cara Operations to acquire Original Joe's for $93M
The Original Joe's, State & Main and Elephant & Castle restaurant-bar chains will be acquired later this year by Cara Operations Ltd., which sees an opportunity to increase its presence in Western Canada.
Under transactions announced Thursday, Cara will pay $93 million for a majority stake in Original Joe's Franchise Group Inc., which will remain under its current management and keep its corporate head office in Calgary.
"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," Cara CEO Bill Gregson said in a release.
Original Joe's president and CEO Derek Doke said "the opportunity to partner with Cara was attractive from a strategic and synergistic perspective."
The bulk of what Cara pays, $90 million, will be used by Original Joe's Franchise Group to re-acquire its trademarks and royalty rights from Diversified Royalty Corp., which also owns the Sutton real estate brand and the Mr. Lube franchise business.
This will allow Original Joe's to retain about $12.6 million in annual royalty payments now paid to Diversified Royalty.
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Cara Operations currently has about 1,000 restaurants in its network, including Harvey's burgers, Swiss Chalet chicken and ribs, New York Fries and the Kelsey's, East Side Mario's, Bier Markt and other casual dining restaurants.
The Toronto-area company's total system sales will reach about $2.7 billion after adding the 99 locations in the Original Joe's group and the 117 locations from its previously-announced acquisition of Quebec-based St-Hubert chain of chicken and ribs restaurants.
Sean Morrison, president and chief executive officer of Diversified, said that the sale of the trademark and royalty rights will reduce DIV's exposure to the Alberta economy, which has put pressure on the Original Joe's restaurant business.
"With over $80 million of cash on its balance sheet ... DIV will have the opportunity as well as funds to acquire additional royalty streams from growing, multi-location businesses and franchisors," Morrison said.
The Original Joe's transaction, subject to approvals, has a targeted closing date of late 2016.