The private equity binge has extended to the fast food industry with a Sydney fund backing Australian Fast Foods Pty Ltd managing director Frank Romano in a $180 million deal, buying out major shareholder Nick Tana.
The private equity binge has extended to the fast food industry with a Sydney fund backing Australian Fast Foods Pty Ltd managing director Frank Romano in a $180 million deal, buying out major shareholder Nick Tana.
Quadrant Private Equity will become the majority shareholder in AFF, which operates about 450 Red Rooster and Chicken Treat outlets across Australia.
Quadrant managing director Chris Hadley said his plan was to increase the number of stores to about 600 over the next three to four years and then list the business on the Australian Stock Exchange.
Quadrant will acquire a 75 per cent interest in AFF while Mr Romano will retain a 15 per cent shareholding.
The remaining 10 per cent stake will be held by four senior managers: chief financial officer Mark Lindsay, general manager Nick Sworder, marketing chief Leanne Anderson and Brisbane executive Gary Martin.
The buy-out will see AFF chairman Nick Tana, his brother Filipo Tana and Mr Romano's brother Joseph Romano sell their interests in the Balcatta-based company.
Mr Romano said the former shareholders had not been active in running the business for many years.
"The business needs to go to another level and needs some new management," Mr Romano said.
"There are some good young people who deserve a slice of equity."
Mr Hadley said the $180 million purchase price was based on a multiple of eight times AFF's earnings before interest, tax, depreciation and amortisation.
AFF's latest annual accounts lodged with the Australian Securities and Investments Commission show EBITDA of $18.8 million for the year to 30 June 2006, down from $20 million in the previous financial year.
The accounts also show that AFF recorded revenue of $322 million and net profit after tax of $4.2 million.
The group will carry increased debt under the new ownership structure, though Mr Hadley said its gearing would not be as high as other private equity deals currently in the market.
The $180 million purchase price comprises $70 million in equity provided by Quadrant's No. 2 fund and $110 million in debt provided by the HBOS group.
Ernst & Young was lead adviser on the transaction.
It also advised AFF in 2002, when AFF bought the Red Rooster business from Coles Myer Ltd for about $70 million.
The full text of a company announcement is pasted below
Australian Fast Foods Pty Limited, which is the owner of leading retail brands Red Rooster and Chicken Treat, today announced the completion of a $180 million Management Buy-Out in partnership with Quadrant Private Equity involving some 450 outlets in Australia and New Zealand.
The acquisition group includes the Company's current Managing Director, Mr Frank Romano, maintaining a significant interest in the ownership structure, together with key management and Quadrant Private Equity.
Mr Frank Romano, Managing Director, AFF said "The Quadrant Private Equity funded Management Buy-Out positions the Company to aggressively achieve its next phase of growth including potential strategic acquisitions and provides an exciting opportunity for our 7,500 staff, our current and future franchisees and the shareholders."
AFF has some 450 outlets, comprising more than 310 company-owned outlets and 140 franchise outlets across the Red Rooster and Chicken Treat networks in Australia and New Zealand, making AFF the largest company-owned chicken fast food retailer in Australia.
AFF acquired the Red Rooster business from Coles Myer Ltd in 2002, having sold the Big Rooster chain to Coles in 1992. Red Rooster was founded in 1972 and Chicken Treat in 1976.
AFF's core product Roast Chicken is complemented by a range of recent product innovations across both Red Rooster and Chicken Treat. Most notable is the recently launched grilled, skin free Portuguese Pieces at Red Rooster. This, combined with an extensive range of wraps, baguettes and salads, positions AFF perfectly to deliver its promise of Quick, Tasty, Fresh, Real Food. AFF provides a truly modern fast food offering, delivering products 21st Century consumers demand.
AFF is positioned for strong growth in both its company-owned and franchise markets due to:
Very strong market position - AFF has some 450 outlets and approximately 10% of the fast food market in Australia, providing a healthy fast food offering to the ever increasing market in Australia. Red Rooster enjoys 99% spontaneous awareness amongst Australian consumers.
Flexible brand and market offering - AFF is the only major Australian fast food company which owns its brands. Therefore, the Red Rooster and Chicken Treat brands can be used to create a flexible offering between company-owned and franchise stores and expansion both in Australia and new markets.
Health Status of product - Both Red Rooster and Chicken Treat deliver a balanced menu using only A Grade chickens delivered fresh daily across Australia. The innovative menuboards include a number of 97% fat free products providing customers with great choices matching the increasing demand by Australians towards healthy eating.
Following the successful launch of grilled skin free Portuguese Pieces, the Red Rooster business is set to rapidly expand this category with the addition of several more innovative grilled products in the coming twelve months.
In addition, by the end of May 2007, both Red Rooster's and Chicken Treat's cooking oil will be 63% lower in saturated fat and contain less than 0.03% trans fatty acids and no cholesterol.
Growth Potential - The brands have significant growth potential in their existing markets and overseas. A comprehensive store roll-out program is underway as well as an expansion of the franchising model.
Mr Chris Hadley, Managing Director, Quadrant Private Equity said "The Red Rooster and Chicken Treat brands are Australian-owned and market leaders in the provision of roast chicken to Australian families. AFF has a very good track record, strong management, a proven business model and strong market positions which we will work with management to expand in both existing and future markets.
Quadrant Private Equity has followed the success of Australian Fast Foods since their acquisition of Red Rooster in 2002 and believes the Company has a fantastic position in the market-place."
Mr Michael Anghie, Partner, Ernst & Young Mergers and Acquisitions, who were the lead advisors on the transaction, said "through its acquisition of Red Rooster from Coles and now through the Management Buy-Out, AFF is extremely well positioned to continue its rapid expansion in the Australian market place and build on the solid platform created by the founding shareholders."
Mr Marcus Darville, Investment Director, Quadrant Private Equity said "the Buy-Out will enable Red Rooster to accelerate its roll-out of stores, particularly in NSW and Victoria".
