Jan 23, 2018
Cara CEO plans to expand 'iconic' Keg steakhouse after $200M deal
BNN Bloomberg
Cara Operations is buying the parent company of The Keg in a move that builds out the restaurant conglomerate's empire.
Under the terms of the deal announced on Tuesday, Cara will pay $200 million in cash and stock for Keg Restaurants Limited. The takeover value could rise by as much as $30 million based on performance milestones over a three-year period.
“Who wouldn’t want to be associated with The Keg?” Cara CEO Bill Gregson said in an interview with BNN. “It’s iconic in Canada. It’s acknowledged as the number-one restaurant from the point-of-view of service, ambience, culture, food. It was just a great opportunity.”
The deal will add to Cara's stable of restaurant brands, which already includes familiar names such as Swiss Chalet, East Side Mario's and Harvey's, and expand its network to 1,365 locations.
Cara shares (CARA.TO) rose more than six per cent to $26.50 at 12:30 p.m. on Tuesday, following the deal’s announcement.
The Keg traces its roots back to 1971, when George Tidball opened the first restaurant. Today, it has 106 locations across Canada and the United States.
Gregson said he’s aiming to broaden that footprint.
“The Keg is designed to continually expand,” Gregson said, noting that a portion of each restaurant’s profits pay into The Keg Royalties Income Fund (KEG_u.TO). “There’s still lots of opportunity in Canada. We’ve got 96 stores. We won’t [get to] 200 stores, but there is opportunity for more stores in Canada.”
“We have 10 stores in the U.S. and we think there is also opportunity down in the States.”
The Income Fund will continue receiving royalties after the deal is finalized.
Current Keg CEO David Aisenstat welcomed any further push into the U.S.
"That's something we're aching to do and this makes it a lot more realizable a goal for us," he told BNN in an interview on Tuesday.
Cara expects the takeover to immediately add to its adjusted earnings per share upon closure, which is anticipated this quarter, and said it plans to eventually change its name.
Once the transaction closes, Aisenstat will assume leadership of Cara's high-end banners, including The Bier Markt and Milestones.
“Milestones, Bier Markt, and The Landing: They do well, they’re not at the same level as The Keg,” Gregson said.
“With David being there, what we would look to see is those three brands elevated - in their own way, they’re not going to become The Keg, they each have their own identity… but, how they do business, their service and culture, what they stand for - to the same level of The Keg.”
Cara's deal with Keg Restaurants will see Cara nab about 160 Keg locations across Canada and the U.S. (The Canadian Press)
A recent history of restaurant M&A in Canada:
January 2018: Swiss Chalet owner Cara announces acquisition of the Keg Restaurants for $200 million
December 2017: Mucho Burrito owner MTY Food Group announces acquisition of Baton Rouge owner Imvescor for $248 million
February 2017: Restaurant Brands International announces acquisition of Popeyes Louisiana Kitchen for US$1.8 billion
May 2016: MTY announces acquisition of Cold Stone Creamery owner Kahala Brands for $299 million
March 2016: Cara announces acquisition of St-Hubert for $537 million
August 2014: Burger King announces acquisition of Tim Hortons for $13.3 billion
Editor's note: An earlier version of this story incorrectly indicated Cara is buying the income fund. BNN regrets the error.
