Grand Parade Investments has announced it is selling 100 per cent of its stake in Burger King South Africa and the Grand Foods Meat plant to Emerging Capital Partners, one of Africa’s largest private equity groups with over $3.2bn in funds raised.
GPI is embarking on a value unlock strategy through the controlled sale of assets.
The valuation of Burger King is R670m enterprise value which equates to a 12 times historical EBITDA (FY2019), and approximately eight times forward EBITDA (FY2020). Grand Foods Meat plant will accompany the sale of BKSA and is valued at R27m. The deal is a Category 1 transaction and is subject to regulatory approval and several conditions precedent.
The Burger King brand has grown to become one of the largest and fastest growing restaurant chains in South Africa with more than 90 restaurants across the country
Maximising value for shareholders
Describing the strategic direction that GPI is taking, CEO Mohsin Tajbhai says: ‘Our focus is on maximising value for our shareholders, many of whom have been with us from inception. GPI has historically traded at a significant discount to the value of its underlying assets. Over the last two years we implemented a focused, value-based strategy which aimed at reducing the discount at which the Group’s share price trades relative to its intrinsic net asset value (iNAV). This has resulted in a substantial improvement in the profitability of our operational foods business and reduction in the overall discount from over 40 per cent to between 20-30 per cent.
Mohsin Tajbhai CEO of Grande Parade Investments
‘We achieved this by prioritising capital towards high value potential assets, closing unprofitable businesses and reducing debt through the partial sale of our stake in The Spur Group. This focussed and value-based strategy has resulted in an improvement in profitability of all our foods business. In particular, Burger King South Africa has seen impressive growth both on the top line and in profitability, to the point where the asset has achieved an attractive valuation. The board considered the sale of GPI’s stake in Burger King South Africa in the context of the group’s strategy of unlocking value for all shareholders and has decided that the best way forward is to initiate a controlled sale of assets which will result in considerable value unlock for all shareholders. The sale of Burger King is a first and positive step in this process.
‘Burger King South Africa has historically been undervalued by the market. Under our guidance, the significant improvement in performance of the business over the last two years, as evidenced by a quadrupling in EBITDA and positive Net Profit After Tax for the last financial year, has instilled some confidence in the market. The sale at a 12x historical / 8.0x forward EV/EBITDA multiple is an attractive valuation and represents a significant value unlock for all shareholders. We are confident that ECP is well placed to support the business through its next phase of investment and expansion.
‘We are pleased that today’s announcement is yet another positive milestone in a series of key strategic steps we have taken to unlock value for our shareholders over the last year. At our financial results presentation held in October last year, GPI reported an increase in revenue of 28 per cent and an improvement in EBITDA of 37 per cent for the year ended 30 June 2019, achieved through taking a number of decisive measures, including the voluntary liquidation of Dunkin Donuts and Baskin-Robbins and closing unprofitable Burger King South Africa restaurants. Focusing on efficient processes also led to a vast improvement in earnings of Mac Brothers and the Grand Foods Meat Plant.’
Valuable assets
‘GPI retains extremely valuable and saleable assets in SunWest, Worcester Casino, Mac Brothers, Spur and our property portfolio. With a strengthened balance sheet, we are under no pressure to offload these assets but rather, we are looking to maximise the value we can return to shareholders.’
Burger King
The Burger King brand has grown to become one of the largest and fastest growing restaurant chains in South Africa with more than 90 restaurants across the country. GPI acquired the Master Franchise for the Burger King brand in 2012. BKSA has performed extremely well over the last two years, exceeding R1bn in turnover in 2019 and for the first time- since opening- contributed positively to GPI’s headline earnings. Under the guidance of Grand Parade Investments, BKSA has achieved impressive growth since its launch in 2013 and is well positioned to continue serving the needs of South African consumers. BKSA has been recognised as the industry winner in service excellence for three years in a row in the Ask Afrika Orange Index.
BKSA sources more than 90 per cent of its ingredients from local suppliers including the Whopper patty, produced by the Grand Food Meat Plant, a GPI owned burger production plant.
‘BKSA focuses on its food superiority with quality burgers and excellent customer service delivery by a team working hard to ensure it caters to and meets the needs of the South African market. BKSA employs more than 2 800 people today, which we would seek to more than double over the course of ECP’s investment. Our goal is to bring Burger King’s delicious and affordable flame-grilled burgers closer to the consumer. From our first fund where Nelson Mandela chaired our advisory committee, South Africa has, and continues to be, an important market to us,’ says Paul Maasdorp, managing director and partner at Emerging Capital Partners.
Paul Maasdorp, managing director and partner at Emerging Capital Partners
The consumer sector is one of ECP’s largest sectors by number of investments, with ECP having completed 12 transactions in the sector. From 2012 to 2017, ECP played an instrumental role in guiding Java House’s growth from 12 stores at investment, into a leading East African restaurant group operating 59 restaurants across three countries at exit. 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 per cent within one year.
Juan Klopper, COO of BKSA, says, ‘GPI launched the Burger King brand in South Africa in 2013, and with the assistance of management have grown Burger King into one of the most loved restaurant brands in South Africa. The executive management team of BK wish to thank GPI for their guidance and support over the years, and we are excited to partner with ECP and to bring this brand closer to more customers.’
Chairman of the BKSA, Hassen Adams reflected on how the Burger King brand was introduced to South Africa. ‘As the founder that introduced Burger King to GPI and South Africa, the journey for me in Burger King was certainly a memorable experience in the Quick Service Restaurant market. It is a sad moment for us to hand over years of hard work. I am, however, very confident that ECP will make an even bigger success of BKSA during the next few years. What is even more satisfying is that an aggressive rollout of stores by ECP will create a lot more job opportunities within South Africa. This is exactly what GPI has always achieved in creating opportunities and leveraging these opportunities successfully. This in itself has created huge employment which is what South Africa needs, together with a long awaited dividend for our patient shareholders.
‘I wish to thank all of the staff and management of BKSA for their support and wish them well in continuing to grow the Burger King brand successfully.’
