Quebec food-court giant bites into U.S. market with acquisition of Kahala
MONTREAL With the patience of a hungry customer who carefully looks over the restaurants at a food court before ordering a meal, MTY Food Group Inc. has acquired the Arizona-based Kahala Brands Ltd. franchise company, which will finally bring it into the U.S. market in a big way.
MTY has been looking to grow, and on Wednesday the Montrealbased company announced it has paid US$300 million for Kahala in a friendly deal that will add 18 brands to its current 30 restaurant banners, familiar to just about anyone who has been to a mall or airport across Canada, including Mr. Sub, Thai Express and Jugo Juice.
“The two companies share the same philosophy, the same platform and same background. I think it’s the perfect fit,” said MTY founder and CEO Stanley Ma, adding that the headquarters will remain in the Montreal area.
“Most of the time these days it’s a U.S. company buying a Canadian company,” Ma said. “This is good news for Quebec.”
About US$240 million of the price will be paid in cash and the rest with 2.25 million MTY shares to acquire Kahala and its brands, including as Cold Stone Creamery, America’s Taco Shop and Kahala Coffee Traders.
At the moment, MTY has just 80 stores in the U.S., but with the
The two companies share the same philosophy, the same platform and same background. I think it’s the perfect fit.
Kahala banners, it will add close to 2,000 when the deal closes. Ma wouldn’t say whether any of the existing Kahala brand locations would be transitioned to MTY stores.
Ma started his first restaurant, Le Paradis du Pacifique, in 1979 with a single location in Laval, Que.
“It’s the only way I know how to make a living,” he said.
Although Ma speaks with the modesty of a small-business owner, the combined MTY entity will have approximately 5,500 stores under 57 brands across North America.
MTY generated more than $1 billion in system sales last year while Kahala brought in about $950 million.
During the 12 months following the acquisition, the company expects to generate more than $90 million in EBITDA, $250 million in revenues and $2 billion in system sales.
Although there is some risk involved in stepping into the U.S. market, Jesse Gamble, an associate portfolio manager at Donville Kent Asset Management, says the conservative nature of MTY’s management team makes him confident this is a well-planned decision.
“We’ve known something like this has been coming for a while ... we understood that if they did a deal it would be the right deal and we trust in them,” said Gamble.
“This is just a game they have to play because they are a growth by acquisition company and as you get bigger, you have to do bigger deals.”
Following the news of the acquisition, MTY’s stock popped 16.48 per cent to $41.56.