RFG SNARES GLORIA JEANS FOR UP TO $180M
Written on the 24 October 2014 by Nick Nichols
RETAIL Food Group (ASX: RFG) has taken a giant leap into the international coffee market with the acquisition of Gloria Jean’s Coffees for up to $179.9 million.
The deal, which also includes the It’s a Grind brand, gives RFG access to 800 franchised outlets across 40 countries and boosts the number of outlets in its multi-brand portfolio to 2400.
In the US, the company will have control of 87 outlets and a coffee roasting facility in Los Angeles, as well as Sydney. Gloria Jeans has 358 outlets in Australia.
The business also will boost RFG’s coffee roasting and wholesale volume by 2.9 million kilograms a year, almost tripling the company’s volumes to 4.5 million tonnes.
According to RFG’s CEO Tony Alford, the extra capacity will “future proof” RFG’s coffee supply needs and offer a platform for exports.
The acquisition is expected to add $24 million to RFG’s earnings before interest and tax in FY16, and is poised to boost the company’s bottom line by 36 per cent to $50 million in FY15.
Alford says Gloria Jean’s has been in its sights for some time.
“No other retail food franchise acquisition opportunity in Australia presents the scale of immediate and longer term benefits, and in this respect is both unique and compelling,” he says.
“Gloria Jean’s Coffees genuinely transforms RFG into a global franchising powerhouse, driving outlet network population to 2400, and providing the company with access to numerous international markets and new revenue platforms,” Alford says.
“Whilst direct management of the Australian and US operations will pass to RFG, the remainder of the international network is operated by independent third-party master franchisees, deleveraging risk and facilitating expedited growth demonstrated by the international network having quadrupled in size during the past decade.”
RFG is acquiring Gloria Jean’s for a base cash price of $163.5 million, including $10 million in RFG shares, while an additional $16.4 million payment will be due once earn-out targets are met.
RFG says the initial payment will be funded through cash reserves and debt, with the company lifting its NAB debt facility from $135 million to $253 million to execute the deal.
The company is also raising $40 million through an institutional share placement and a further $15 million through a share purchase plan for existing shareholders.
Gloria Jean’s executive chairman Nabi Saleh will remain with the business for the next two years, along with the company’s senior management team.
“We have long known that Gloria Jean’s Coffees has extraordinary potential for growth, but we couldn’t have been more impressed by how quickly RFG recognised this potential,” says Saleh.
“Their reputation as one of Australia’s best food and beverage operators, deep expertise in building franchise businesses, and their proven commitment to successfully growing acquired brands, made RFG the ideal choice for the future success of our much-loved Gloria Jean’s Coffees brand.”
The deal is expected to settle in December.
Author: Nick Nichols