A friend – Tom Ball – just sent me this from The Deal. Seems that the EBIDTA multiple was 7.3 – that’s very high. Still, its less than McDonalds and Wendy’s are trading at.
It’ll be interesting to watch.
“But for the buyer, opportunity abounds. Rival McDonald’s Corp. is trading at a 10 times Ebitda multiple and Wendy’s International Inc. is trading at 9.5 times. The TPG group is paying about a 7.3 times Ebitda multiple based on $310 million in Ebitda, or 30% less than the market multiples of Burger King’s competitors.
Still, Burger King is a challenge. The main question is the health of the franchisees that own about 90% of Burger King’s 11,435 restaurants and provide its revenue stream through royalty fees. Several large Burger King franchisees have been struggling to remain solvent after Diageo neglected the brand, letting it slip further behind McDonald’s, several sources said.
If some of these franchisees ã including the largest, AmeriKing, based in Westchester, Ill., which is going through a restructuring ã file for bankruptcy, Burger King will need to either buy them, which would be expensive, or shut them down, reducing royalty payments. “
Just found out that Burger King sales are about $12.5 billion [11,500 stores with an average of $1.1m sales per year]. and the cash componenet of the acquisition for $2.26bn was as little as $600m. Not bad eh. $600mn cash for a $12.6bn revenue operation.
Sure, there is lots of work to be done but hey – nothing is for free.
Thursday, 25 July, 2002, 13:39 GMT 14:39 UK
Diageo agrees Burger King sale
Diageo – the global food and drinks conglomerate [with a portfolio that includes Johnny Walker whisky, Smirnoff vodka and Bailey’s Irish Cream liqueur] has sold Burger King to a group of Venture Capitalists. Interesting. This really throws a light on two phenomenon.
Firstly – we are in a market where the pendulum has swung so far in the direction of value that there are a lot of cheap pickings for those with cash.
Secondly – that Venture capitalists [ in this case a group made up of venture capitalist firms Texas Pacific and Bain Capital, together with private equity group Goldman Sachs Capital Partners] are now players in buy-outs.
The price paid was $2.26bn , and probably leveraged with 50%+ debt.
I have no idea what Burger Kings cash flow annually is but my guess is that this price is less than 1 x revenue and probably around 4 x EBIDTA. The BBC article that this was reported in says that “The sale is dependent on the chain meeting certain sales targets in its financial year to 30 June 2002.” Good for the buyers.
It was also reported that “The market welcomed news of the sale with shares up 5% or 35 pence to 716p. This gives the group a market value of £23bn. “ Good for the sellers. A win-win deal.
How many other companies are nurturing former acquisitions that they could and should dispose of, and how many bargains does that mean there are out there. Answer – lots.
The M&A guys are going to have a lot of work during the next couple of years. If the Internet period was “irrational exhuberance” we are now in the era of “extraordinary value”. You read it here first!
Lets all go get cash!