JSE-listed Grand Parade Investments has entered into a binding offer to sell all its shares in fast food franchise Burger King South Africa (BKSA) to ECP Africa Fund IV.
Grand Parade owns 95.36% of the issued share capital of BKSA.
Grand Parade will also sell to ECP its wholly-owned Grand Foods Meat Plant, which supplies burger patties to BKSA and other businesses.
Grand Parade is an investment holding company with minority interests in the gaming industry and controlling interests in the food and manufacturing industries.
The company has historically traded at a significant discount to its intrinsic net asset value (NAV), with a large portion of the discount attributed to its food and manufacturing investments.
Grand Parade has, over the last two years, undergone a process of restructuring the business, with the aim of reducing the discount to intrinsic NAV.
This process involved discontinuing loss-making businesses and improving the profitability of its operational food and manufacturing businesses. The restructure has resulted in a vast improvement in profitability which assisted in reducing the discount.
However, the company still trades at a large discount to its NAV. Management and the board of directors of Grand Parade have, therefore, decided that the best way to unlock value for shareholders is through a controlled sale of assets.
This shift in strategy should result in a significant value unlock for all shareholders. The sale of the company’s interest in BKSA and Grand Foods Meat Plant represents the first phase of this strategy to unlock value.
Grand Parade’s board has assured that the offer received for the BKSA interests is higher than an independent third party valuation of the business.
The board adds that the monetisation of the company’s assets should result in a positive outcome for all Grand Parade’s shareholders.
ECP will pay the equity value of BKSA multiplied by 95.36%. The equity value is based on an enterprise value of R670-million, being an eight times multiplication of the normalised earnings before interest, taxes, depreciation and amortisation (Ebitda) of BKSA for the 12 months ending June 30 of at least R84-million.
In terms of Grand Foods Meat Plant, ECP will pay the equity value of the plant, which is based on an enterprise value of R27-million, which in turn equates to a three times multiplication of the normalised Ebitda of the plant for the 12 months ending June 30, of at least R9-million.
Grand Parade and Restaurant Brands International formed BKSA, which holds the long-term master franchise of the Burger King brand in South Africa, and have exclusive rights to develop and expand Burger King’s quick service restaurant market in South Africa.
Grand Parade opened the first Burger King restaurant in Cape Town in May 2013 and this has since grown to 92 restaurants across the country.
Grand Foods Meat Plant operates a state-of-the-art burger production facility built to European Union standards and is a Halaal-certified supplier.
Burger King is Grand Foods Meat Plant’s largest customer with more than 90% of the sales. The plant also supplies Spur and the Grill Father with frozen patties.