SOUTH AFRICA – Famous Brands has bought 100% of GBK Restaurants in the UK and Ireland for £120m subject to approvals.

At a hedged rand-sterling exchange rate of R17.50, the acquisition of Gourmet Burger Kitchen (GBK) adds 75 company-owned restaurants to Famous Brands.

These offer eat-in, take-away, and online delivery in the premium hamburger category in the UK.

Founded in 2001, GBK operates a differentiated, flexible, fast-casual dining model, which caters to a variety of meal times. Shops are open from about 11am to 11pm.

“We think it’s a terrific price. GBK is a fabulous asset, with a great management team,” Kevin Hedderwick, former Famous Brands CEO and now group strategic adviser, said on Thursday.

He said the chain of premium quality burger stores was a prime asset for Famous Brands to have landed in a competitive British marketplace.

The shops sell burgers, fries, milkshakes, and craft beer. “(The beer) is one of the things that differentiates the brand,” he said.

Hedderwick said funding for the buyout came from a combination of cash and short-term debt.

GBK also had a retail offering whereby GBK-branded food products manufactured by a third party were sold into retail channels. Famous Brands had identified the UK as a strategic growth region in Europe and an opportunity to earn hard currency outside of Africa.

“There is not a lot left in SA in terms of category space that we don’t operate in,” Hedderwick said. The acquisition would add scale to the existing UK business of Famous Brands. This included Wimpy UK and a couple of pilot Steers burger outlets.

In addition, GBK had recently re-acquired the rights to the Irish franchise network, adding another five stores to its portfolio.

Robyn Turner, an analyst at Avior Capital Markets, said on Thursday that the £120m transaction price was attractive against annual earnings by GBK before interest, tax, depreciation, and amortisation of about £9.6m, and a net asset value of £14.4m.

“This puts the deal on a multiple of 12.5x EV/Ebitda (enterprise value/earnings before interest, taxes, depreciation and amortisation), which is value accretive to Famous Brands,” Turner said.

“Famous Brands have been searching for a UK acquisition for some time in order to earn more hard currency, as well as to create additional scale — they already have 81 Wimpy UK stores — so that a supply chain can be developed in order to increase profitability and growth in the UK segment,” she said.

Alasdair Murdoch, CEO of GBK, said on Thursday that the chain had grown rapidly and had registered consecutive years of like-for-like sales growth, “based on fantastic restaurant teams and … a continuous journey towards excellence in our food”.

“We’re delighted to move onto the next phase of growth with Famous Brands. As part of the group, our aims will remain the same: to continue opening 10 to 15 restaurants a year in the UK … and look at other opportunities.”

GBK’s management team had owned 3% of the venture and had worked with major global food brands including KFC, Pizza Hut, and Pizza Express. Hedderwick said Famous Brands had bought out their share and replaced it with a four-year management earn-out.

“The incumbent management team is key to the success of the future of the business and will be retained,” he said..

Launched in 2001 in Battersea, South London, GBK was founded by three New Zealanders with the support of an eminent New Zealand chef. In 2010, the business was acquired by the Yellowwoods Group.

Yellowwoods, formerly Capricorn Ventures International, was a private equity company owned by a South African family, the Enthovens, who made their fortune in insurance, and were early investors in Nando’s in SA.

The Yellowwoods acquisition had marked a pivotal turning point in the company’s history, setting the brand on a growth trajectory.

The burger stores chain was now widely renowned as the market leader in the premium burger category in the UK, said Hedderwick.

September 2, 2016;