M&A Activity is on the Rise in Canada

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The last few years have been busy in terms of M&A activity in foodservice. As deals get significantly larger, however, key players are narrowing down to a select few.

“If a large company has access to capital and is looking to grow rapidly, it’s always much easier to acquire than start from scratch,” says David Hopkins, president, The Fifteen Group in Toronto. “And the bigger they get, the faster they want to grow. It’s almost an exponential thing. We thought it was a big deal when Cara swallowed up Prime Restaurants in 2013 — that’s tiny in comparison to what is happening now.”

Cara has escalated its acquisition activity considerably since then, acquiring New York Fries in 2015, followed by St. Hubert and Original Joe’s Franchise Group Inc. in 2016 and Pickle Barrel in 2017. In March 2018, it announced a $200-million dollar deal with The Keg. As of the end of February 2018, the total size of Cara’s network stands at 1,365 restaurants across its portfolio of 16 brands.

MTY Food Group Inc. in Saint-Laurent, Que. made its own headlines last year by acquiring controlling interest in Houston Avenue Bar & Grill and Industrial Pizza. It also completed the acquisition of The Works Gourmet Burger Bistro and acquired 22 locations of Dagwoods Sandwiches and Salads. The momentum carried into 2018, with the purchase of Timothy’s World Coffee and Mmmuffins in February, quickly followed by a $248-million deal with Montreal-based Imvescor Restaurant Group for its suite of full-service restaurants (Bâton Rouge, Scores Chicken & Ribs, and Pizza Delight). In 2017, the combined operations translated into a portfolio of 2,286 Canadian stores under 70 brands with an estimated $276.1 billion in gross sales.

Growth through acquisition makes perfect sense if you are blessed with the resources and critical mass, says Geoff Wilson, principal of fsStrategy Inc. in Toronto. “[The big players] can strengthen their supply chain, as well as drive revenues and net operating profits to increase shareholder value. That’s what’s motivating a lot of this..”

M&A activity also allows acquirers to break into new market segments with relative ease, he says. “A lot of Cara operations have been midscale. With the recent acquisition of The Keg, [it] can gain market share in the higher-end-dining segment.”

Large-scale acquisitions are not for the faint of heart, Wilson adds. “It takes a lot of personal drive on the part of owners and the smarts to operate in a lean fashion to get the critical mass needed to meet their goals.”

The outcome, however, is significant in the way of lowering food and operating costs through increased purchasing power and more efficient use of advertising, marketing and real estate. This is crucial as the minimum-wage increase is driving owners
to find even more ways to run their outlets more efficiently.

For operations looking to be acquired, Wilson says opportunities are appearing on both the domestic and international fronts. “U.S. companies, especially, are sniffing around Canada for acquisition opportunities. We get calls a number of times a year.”

 

Written by Denise Deveau

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