The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price is on course to end the week on a positive note.
In early trade, the pizza chain operator’s shares are up 2% to $116.60.
Why is the Domino’s share price pushing higher?
The catalyst for the rise in the Domino’s share price higher today has been the release of an acquisition announcement.
According to the release, the company has entered into a binding agreement with Formosa International Hotels Corporation to acquire the corporate stores and franchise rights held by Domino’s Taiwan for A$79 million on a cash and debt free basis.
The release notes that Domino’s Taiwan has the second largest pizza chain in the Taiwanese market, with a sophisticated network of 138 franchised stores and 19 corporate stores.
Furthermore, the stores are located across all major cities with substantial opportunity for further growth. In fact, management intends to significantly expand the business, with a long term aspiration of 400+ stores and delivering growth in its average weekly unit sales.
To help it achieve these goals, Domino’s plans to work with experienced local pizza experts who built a solid foundation in the market. It will also add its proven technology (including online platform OneDigital) and operational innovations.
In addition to this, the company expects to benefit from regional procurement, supply chain, and operational synergies through leveraging its existing capabilities in Japan and globally over a larger store network.
Domino’s Pizza Enterprises CEO & Managing Director, Don Meij, believes the Taiwanese market has significant potential.
He said: “This is a market with tremendous opportunity for our business and this acquisition provides similar opportunity for the local team. Our expansion focus has been on identifying opportunities with large total addressable markets and a stable economy – we look forward to bringing our High Volume Mentality to this business.”
“We have built centres of excellence in Australia/New Zealand, Europe and Asia, allowing us to complement local expertise in menu development and taste preferences with proven experience in technology, marketing, operations, and strategy and insights. Just as this approach has worked in Europe and more recently in Japan, we intend to apply the same lessons in the new market.”
“We intend to expand the store footprint through opening more corporate stores, introducing new, internal, franchisees to the network, helping existing franchisees profitably expand their businesses, and investing in the network and our people to drive long term growth.”
The acquisition of Domino’s Taiwan is expected to give the company’s earnings a modest boost in the near term.
The acquired business delivered network sales of approximately A$73 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of approximately A$4.8 million for FY 2020.
Based on this, the transaction is approximately 2% earnings per share accretive (excluding integration, reorganisation and transaction costs).
However, it may not stop at this acquisition. Management advised that it remains active in pursuing suitable additional markets as acquisition opportunities.
The Domino’s share price is up over 30% in 2021.