Montreal company MTY buying Cold Stone parent Kahala for 300 million dollars.

Screen Shot 2016-05-25 at 6.10.47 PMMTY FOOD GROUP INC.

8150 route Transcanadienne, Suite 200 St-Laurent, Quebec, H4S 1M5

TSX Trading Symbol: “MTY”



(Editor’s note: News releases are published unedited, unless they contain factual errors.)

Montreal, May 25, 2016 – MTY Food Group Inc. (“MTY” or the “Company”) (TSX: MTY) announced today that it has signed an agreement to acquire the shares of Kahala Brands, Ltd. (“Kahala”) ( pursuant to the merger of a wholly- owned subsidiary of the Company with and into Kahala in accordance with the terms and conditions of such agreement.

Stanley Ma, Chair of the Board and Chief Executive Officer of MTY, said: “This is one of the most important days in the history of MTY, being able to acquire a great portfolio of brands managed by among the very best people in the industry. MTY had been searching for the right foundation for its US expansion for the last three years, and it has finally found the perfect match. The combination of the two companies’ portfolio and expertise will produce tremendous opportunities in Canada, in the United States and worldwide.”

Michael Serruya, Chairman and Chief Executive Officer of Kahala said: “My brothers and I have known Stanley Ma for many years. He is an extremely competent, and professional CEO, who successfully leads an outstanding Company. The merger of Kahala and MTY in my opinion is in the best interests of all Kahala’s shareholders, our outstanding employees, franchisees, suppliers, and the entire Kahala community.”

Transaction and rationale

Kahala currently franchises and operates approximately 2,800 stores worldwide, under 18 brands in 25 countries. Kahala’s network generates annual system sales of over C$950 million. Kahala’s operations are a natural fit for MTY given the similarity of the companies’ operations. Both companies operate a very scalable multi-brand franchised network, generate high EBITDA margins and maximize EBITDA conversion into free cash flows.

The acquisition of Kahala represents a major milestone for MTY as it solidifies its presence in the United States that will become one of the main growth platforms for MTY for the brands currently operating in the United States and for MTY’s Canadian brands.

Kahala’s head office is located is Scottsdale, Arizona. Following the transaction, MTY’s US head office will be moved into Kahala’s current offices.

During the 12 months following the acquisition, the combined entity is expected to generate over C$90 million in EBITDA, C$250 million in revenues and C$2 billion in system sales. The transaction is expected to be immediately accretive. The combined entity will have a portfolio of approximately 5,500 stores under 57 brands.

“Combining the best of both companies and the knowledge and weight of each company in their respective markets is expected to yield significant acceleration in the growth of the combined business in North America and worldwide” commented Stanley Ma.

Conditions and regulatory approvals

The agreement is binding but remains subject to multiple conditions, including standard regulatory approvals (including TSX approval), financing and other conditions customary for a transaction of this nature.


Total consideration for the transaction is estimated at US$300 million, satisfied by the issuance of 2,253,930 shares of MTY and the payment of US$240 million in cash. The final purchase price remains subject to customary working capital adjustments. The cash component of the consideration will be financed by MTY’s cash on hand and by the new credit facility that is presently being arranged. TD Securities will act as the sole Lead Arranger and Bookrunner for a syndicate of lenders. The new credit facility is expected to provide enough flexibility for MTY to complete additional acquisitions in respect of future opportunities that might become available to MTY and continue to pay and adjust its dividend in accordance with its dividend policy.

Closing of the transaction

The closing of the transaction is expected to happen within the next 75 days. There is no assurance the transaction will be completed as described above or at all, or that the anticipated closing date will materialize.

Non‐IFRS Measures

This News Release makes reference to certain non‐IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. The Company uses non-IFRS measures including “System Sales” and “EBITDA” to provide investors with supplemental measures of its operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. The Company’s management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets, and to determine components of management compensation.

“System Sales” represents the net sales received from restaurant guests at both corporate and franchise restaurants including take- out and delivery customer orders. System Sales includes sales from both established restaurants as well as new restaurants. Management believes System Sales provides meaningful information to investors regarding the size of MTY’s restaurant network, the total market share of the Company’s brands and the overall financial performance of its brands and restaurant owner base, which ultimately impacts MTY’s consolidated financial performance.

“EBITDA” is defined as net earnings (loss) from continuing operations before net interest expense and other financing charges, losses (gains) on derivative, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, and impairment of assets, net of reversals.

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May 2016