GPI’s royal deal

Burger King

CAPE TOWN-based empowerment company Grand Parade Investments (GPI) has served up its 95.36% stake in fast food franchise brand Burger King to a growth hungry private equity investor.

Emerging Capital Partners (ECP) Africa will not only buy the local master franchise rights to Burger King – which turned profitable last year – but also the Grand Foods Meat Plant (which supplies hamburger patties to Burger King).

GPI will now be left mainly with its gaming interests in SunWest – which operates the cash spinning GrandWest casino in Cape Town, the Table Bay Hotel and the Golden Valley casino in Worcester.

The price tag for Burger King is somewhat complicated to tally up. GPI slapped an enterprise value of R670 million on the business, which equates to a 12 times historical earnings (before interest and tax) and eight times on a forward earnings basis based on the expected 2020 financial year profits. That means Burger King SA is expecting earnings before interest and tax of at least R84 million for the year ending June 2020.

At this point Burger King has grown into a 90 strong chain with a national presence in the main urban areas. This is a commendable expansion effort considering GPI only acquired the master franchise for the Burger King brand in 2012, and has faced challenges in finding suitable (and affordable) sites for outlets in busy urban nodes.

Still, the local Burger King operations have found flavour over the last two years, and at last count turnover exceeded R1bn.

The recent successes at Burger King were soured slightly by GPI having to place its other (albeit much smaller) food brand operations – Dunkin’ Donuts and Baskin Robbins – into liquidation.

It seems ECP are determined to keep Burger King’s growth ambitions on the boil. Paul Maasdorp, the MD of ECP, said Burger King SA employed more than 2 800 people. “We would seek to more than double (that figure) over the course of ECP’s investment.”

GPI CEO Mohsin Tajbhai said the group had taken a strategic decision to reduce its operational involvement in Burger King SA, and had solicited interest from various firms.

“The offer we received from ECP was the highest bid we received and exceeded an independent valuation done on the business. Based on this, the board felt that it was necessary to recommend the offer from ECP.”

There was talk GPI might hang onto a small minority stake in Burger King – but that was probably difficult to accommodate in a private equity deal.

Tajbhai stressed ECP were experienced investors in the African restaurant and consumer space.

ECP has completed 12 transactions in the consumer sector in recent years. From 2012 to 2017, the firm played an instrumental role in guiding Java House’s growth from 12 stores into a leading East African restaurant group operating 59 restaurants across three countries.

Following the completed sale of Java House, ECP invested in Artcaffé Group, a leading Kenyan restaurant and café operator, in December 2018. Since ECP’s investment, Artcaffé Group has grown its store footprint by more than 30% in one year.

It will be interesting to see if ECP are interested in growing Burger King into selected African markets.