The Domino's Pizza Enterprises Ltd. (ASX: DMP) share price has been amongst the best performers on the local market this morning.
At the time of writing the pizza chain operator's shares are up 3% to $49.14.
Why are its shares higher today?
This morning Domino's announced that its majority-owned German joint venture has entered into a binding agreement to acquire the Hallo Pizza chain of 170 stores in Germany.
This acquisition will increase Domino's store count in Germany to approximately 300 to 340 stores following brand conversions. Not all stores will be converted due to their proximity to existing Domino's stores.
According to the release, Hallo Pizza generated network sales of €80.2 million and normalised earnings before interest, tax, depreciation, and amortisation of €3.5 million in FY 2016.
The joint venture will pay €32 million ($48 million) on a cash and debt free basis, with an additional €20 million to €30 million expected to be incurred over the next 24 to 36 month due to integration, re-branding, store conversion, and transaction costs.
Management expects the aggregate cost to Domino's Pizza Enterprises to be between €35 million and €42 million.
Should you invest?
While the transaction will only have a small positive contribution to the company's FY 2018 underlying earnings, I believe it could be a big boost in the future.
Based on its FY 2016 result Hallo Pizza operates on an EBITDA margin of just 4.3%, which is significantly lower than the 15.6% EBITDA margin Domino's European businesses currently enjoy.
I believe that once the stores have been converted they will become as profitable as the rest of the business, making this acquisition extremely good value in my opinion.
In light of this, I think this is yet another reason to consider an investment in Domino's today.