Grand Parade preparing Burger King Africa roll-out
Hassen Adams, the chairman of Cape Town-based black empowerment investment holding company Grand Parade Investments (GPI) which owns Burger King South Africa, says that the quick-service restaurant group’s foray into the rest of Africa will be hugely aided by its recent tie-up with Spur Corporation.
Burger King’s Africa expansion, which includes big countries like Nigeria, is set to take shape well before the end of the year, according to Adams. “We’re currently in negotiations and working on contracts with various players including governments in Africa, looking to pin down a huge deal for Burger King, but I cannot say much more than that at this stage,” Adams told Finweek.
An e mpower ment deal wa s announced last week that sees GPI
acquire 10% of Spur in a deal funded through a combination of existing GPI cash resources (R72.3m, representing 24.55% of the f unding requirement) and preference share funding from Spur (R72.3m, 24.55%) and from Standard Bank ( R150m, 50.9%). The i nvestment will result in a net cash inf low of R222.3m for Spur.
The deal makes GPI the second-largest shareholder in Spur after fund manager Allan Gray, which owns 16% of the multi-brand restaurant franchisor.
Spur, which operates through brands l ike Spur Steak Ranches, Panarottis, John Dory’s and Captain DoRegos, has exposure in a number of African markets including Nigeria, Kenya and Malawi, with a total of 479 restaurants across the rest of Africa including South Africa (429 outlets), Europe, Australia and the UAE.
Jean-Pierre Verster, an analyst at 36One Asset Management, says the deal with Spur makes a lot of sense for Burger King’s expansion into the rest of Africa as Spur already has the infrastructure in place, which would help Burger King to hit the ground running. “The deal is a good one for both players – there’s the cash component for Spur and the sharing of the supply chain where GPI can add value by supplying Spur with meat and other ingredients, as well as the experience and lessons that Spur has doing business in Africa that will be beneficial to GPI’s Africa strategy for Burger King,” says Verster.
The empowerment transaction gives GPI a seat on Spur’s board. For most of its life GPI has been playing as a BEE partner with no significant position to add value to the companies it was buying into. Adams said that the group is done playing second fiddle and acting as window dressing in empowerment deals.
Through the Burger King roll-out, and Africa expansion, GPI is looking to create about 40 000 jobs in South Africa, especially on the training and supply side, says Adams.
Burger King opens its 20th store in Parow, Cape Town, this week and expects to open another 20 before the end of the year. It is expected that there will be a total of 100 stores in SA by June 2015.
All of the Burger King outlets are owned outright by GPI and a franchising model is not on the cards. The group looks set to add further value for its shareholders through a property portfolio that is being created via various investments including all the properties of the Burger King drive-through restaurants that are owned by GPI.
GPI has a R2bn windfall t hat it expects to receive from the sale of its gaming assets to Sun International, pending the gaming board’s expected approval, and a further R1bn from various other disposals. With such a low-geared business, there are countless opportunities it can spend the capital on.
Adams says that for now he prefers to play his cards close to his chest and would only say that “there is much, much more to come from the GPI and Spur deal”.
One of the South African successes
“WE’RE CURRENTLY IN NEGOTIATIONS AND WORKING ON CONTRACTS WITH VARIOUS PLAYERS INCLUDING GOVERNMENTS IN AFRICA, LOOKING TO PIN DOWN A HUGE DEAL FOR BURGER KING.”
(also elsewhere in Africa) in the fastfood space is the Kevin Hedderwickled Famous Brands, with names such as Steers, Wimpy and Debonairs Pizza, which generates immense shareholder value through franchising and supplychain integration. Adams says that at this point, however, Famous Brands is not the kind of company that they would look to partner with as their business models and strategies are completely different.
So apparently there aren’t a lot of acquisition and investment opportunities suited to GPI’s taste of blue-chip-only brands. “Who knows?” says Verster. “They could be looking to bring to SA another international brand, like Starbucks.”
Hassen Adams, the chairman of Grand Parade Investments