News

Canadian restaurant group acquires Kahala, readies for US growth spurt

July 22, 2016

Shareholders approved the merger Thursday of Kahala Brands Ltd and a wholly owned subsidiary of MTY Food group. Kahala — as the parent company of 18 brands, including Blimpie, Cold Stone Creamery and Johnnie's New York Pizzeria — had previously signed an agreement in late May to merge with the Canadian-based franchisor, which operates 40 mostly quick-serve concept restaurant brands with system-wide sales of more than $1 billion Canadian or nearly $765 million U.S.  

Immediately following the closing of the merger, Kahala Brands will continue to be operated out of its current headquarters in Scottsdale, Arizona, according to a news release.
According to a report about the original merger announcement in May, MTY Board Chairman and CEO Stanley Ma said the acquisition of Kahala is the result of a multi-year search for the right company to merge with in order to expand into the U.S. 

"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," he said in the earlier release. "MTY had been searching for the right foundation for its U.S. 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."

Kahala Chairman and CEO Michael Serruya said the company's leadership has known Ma and the MTY group for years and greatly respects their business practices. 

"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."

The new combined entity will have 5,500 stores under 57 brands. MTY leadership has said that the company sees this acquisition as the best route to future growth and enhanced presence in the U.S. for MTY's Canadian brands. MTY is moving its offices for its U.S. operations to Scottsdale, Arizona,  where Kahala is currently located. 

Where the new combined restaurant group is headed

Over the course of the new year, the new group expects to generate nearly $69 million in EBITDA, as well as more than $191 million in revenues and more than $1.5 billion in system sales. The merger was expected to immediately grow the merged company's overall value. 

"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," said Ma in a release. 

In May, a news release stated that the $300 million acquisition was paid for with 2,253,930 shares of MTY and $240 million in cash. QSRweb.com has several questions into the two companies about the merger and the plan forward, which we will report as responses are received.