Original Joe’s, Elephant & Castle restaurant-bars to reinforce Cara in the West

TORONTO – The Ontario-based owner of the Swiss Chalet, Milestones, East Side Mario’s and other restaurant chains is strengthening its position in Western Canada through a $93-million deal to acquire majority ownership of the Original Joe’s group.

Cara Operations Ltd. of Vaughan, Ont., (TSX:CAO) said Thursday it will acquire an 89.2-per-cent stake in Original Joe’s Franchise Group Inc., which has 99 corporate, franchise and joint-venture restaurant-bar locations.

The Calgary-based group is anchored by 66 Original Joe’s restaurants. It also has 23 State & Main locations, 10 Elephant & Castle pubs and a small general contracting company that designs and builds restaurant and retail locations.

Original Joe’s corporate head office will remain in Calgary under the leadership of president and CEO Derek Doke, who will also be a minority owner of Original Joe’s Franchise Group through Franworks Franchise Corp., a management company founded in 2000.

Cara CEO Bill Gregson told analysts on a conference call that Original Joe’s is a “natural fit” because of its strong management team, the opportunity to grow profit margins through increased size and its presence in Western Canada.

“We have been, historically, very heavy in Ontario and underrepresented in some of the other provinces,” Gregson said.

Cara has about one restaurant per 21,000 people in Ontario compared with one per 59,000 people in Western Canada and one per 140,000 in Quebec, he said.

The Original Joe’s acquisition will improve Cara’s penetration in Western Canada to one per 41,000 people and the pending acquisition of St-Hubert, announced in March, will raise its Quebec presence to one in 49,000.

“So over the long term, that evens out the risk we have in any one area,” Gregson said.

He added there will also be opportunities for Cara and Original Joe’s to improve their efficiencies.

“We know we can help them, Day 1 after closing, on food costs without changing anything they do because of our purchasing power,” he said.

He also noted there may be ways to lower Original Joe’s labour costs through Cara’s management techniques and to lower Cara’s building costs — especially in Western Canada — with Original Joe’s contracting company.

Original Joe’s Franchise Group will use $90 million from Cara to re-acquire its trademarks and royalty rights from Diversified Royalty Corp. (TSX:DIV). This will allow Original Joe’s to retain about $12.6 million in annual royalty payments.

Doke said the opportunity to partner with Cara was attractive “from a strategic and synergistic perspective,” and puts Franworks in a solid financial position.

Cara Operations, which currently has about 1,000 restaurants in its network, says its total system sales will reach about $2.7 billion after adding the Original Joe’s group and the St-Hubert chain.

The Original Joe’s transaction, subject to approvals, has a targeted closing date of late 2016.

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