Retail Food Group Limited (ASX: RFG), the company behind brands such as Donut King, Pizza Capers and Brumby’s Bakery, today announced that it would be acquiring global coffee giant Gloria Jean’s Coffees for a sum of $163.5 million.
So What: The acquisition will give Retail Food Group global intellectual property rights to the ‘Gloria Jean’s Coffees’ and ‘It’s a Grind’ brand systems. These have reportedly long been a target of the group. The purchase adds to its existing coffee businesses including Cafe2U and The Coffee Guy. The Gloria Jean’s coffee chain has 800 outlets located around the world which will give Retail Food Group more than 2,400 outlets in total.
Retail Food Group’s CEO Tony Alford said: “Gloria Jean’s Coffees genuinely transforms RFG into a global franchising powerhouse, driving outlet network population to c.2,400, and providing the Company with access to numerous international markets and new revenue platforms.”
In order to fund the acquisition, $153.5 million will be payable in cash while the remaining $10 million will be paid in the form of Retail Food Group shares. A further $16.4 million could be payable depending on the business’ performance. The company said that the total amount payable would be funded by a combination of cash/debt (60%) (meaning it will have to increase its senior debt facility with National Australia Bank from $135m to $253m), as well as equity (40%).
The latter will be supplemented by a $55 million capital raising. This will include a $40 million placement to institutional and sophisticated investors, as well as a $15 million Share Purchase Plan for shareholders.
Now What: On the back of the announcement, Retail Food upgraded its FY15 net profit guidance to a 36% increase, up from the 15-20% increase it had initially forecast. While there are certainly risks involved in such large acquisitions, management has a proven track record for acquiring businesses which have delivered fantastic growth.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.