South African restaurant group Famous Brands has acquired the franchise agreements, trademarks and intellectual property of the Keg and McGinty’s brands for a purchase consideration of R27 million (US$3.7 million).
Keg is a franchised pub and restaurant brand, while McGinty’s is a franchised pub brand. There are currently 28 Keg and five McGinty’s franchised outlets in South Africa, Zimbabwe and Mauritius. The transaction is subject to a due diligence exercise. Assuming successful fulfillment of this suspensive condition, the effective date of the acquisition is 1 September 2010.
In the group’s annual report published in May 2010, Famous Brands stated that the company had evolved its strategic intent, thereby expanding its previous narrow focus on quick service restaurants and casual dining, to include the broader leisure category, while remaining true to its core competency of food service.
CEO, Kevin Hedderwick says, “The acquisition of Keg and McGinty’s is our first foray into pure leisure. Our strategic intent is to focus on what we do best, namely food service, but in order to continue unlocking value for stakeholders, we have had to consider the broader leisure category in our search for further growth opportunities.”
Jason Kruger, corporate advisor to the current owner of the brands, The Kempston Group, says, “The Kempston Group is currently refocusing on its core assets and businesses which relate mainly to the transport industry and associated activities, and is thus disinvesting from certain non-core activities. Famous Brands is seen to be an excellent successor, who we believe has the ability to continue enhancing the value of these brands and provide excellent support to our loyal franchisees.”
Hedderwick is very familiar with the pub and restaurant category, and the Keg brand specifically, having been the managing director and a shareholder in Keg Franchising (Pty) Ltd from 1995 to 1997, a business which he and his partners sold to JSE-listed Kingco in 1997.
“At one point the collective Keg and McGinty’s network comprised around 65 restaurant pubs in South Africa, with representation in Australia as well. Despite the southern African footprint having reduced in size to a network of 33, and the brand no longer trading in Australia, the Keg brand remains category leader in the defined themed pub and restaurant franchised business, which speaks volumes for its equity amongst South African consumers,” says Hedderwick.
According to Hedderwick the pub and restaurant category as a whole has declined in recent years, largely as a result of brands failing to reinvent themselves and remain contemporary and relevant in line with changing consumer dynamics. “However there are a number of independently owned pub restaurants that are growing in popularity, which underlines that there is good growth potential within the category for skilful operators,’ he says.
“Of late there has also been a strong revival in the pub restaurant category in the US and UK with the evolution of what is referred to as ‘gastro pubs’ which essentially represent a repositioning of the tired old-style pub category which had become over-dependant on the serving of alcohol to survive,” he says.
Hedderwick notes that growth prospects for the Keg brand in particular are favourable. “While the brand needs innovation and renovation, we are confident that we can restore its rich heritage as a pub and restaurant business, where the emphasis is on the food. In an overall sense, this repositioning will be based on the three pillars which underpinned the brand’s popularity in its heyday, namely good food, good beer, great cheer – and in that order. This iconic brand was, and once again needs to be, perceived by the South African consumer as their ‘local’ – their home from home,” he says.
Key to this acquisition are the synergies and benefits to be extracted from integrating both brands into the group’s comprehensive business model, which existing franchisees will benefit from with immediate effect.
“This transaction is in line with our stated philosophy of accumulating best in class franchised brands, or brands that once acquired, we can make best in class. Our business imperative is to grow and develop leading franchise leisure brands, supporting them with a business model which maximises stakeholder value creation,’ he says.
Hedderwick concludes, “Keg and McGinty’s are welcome additions to our robustly expanding brand portfolio, and are part of a deliberate strategy implemented by the group to make full use of our strong balance sheet to acquire relevant food service brands with compelling upside potential at a time when in certain instances values might be suppressed due to the current economic climate. Our firmly entrenched brand stewardship model continues to serve us well and has proven our ability to manage a wide repertoire of brands within the franchised food service market. Our profit and earnings performance over the years since this journey started is evidence of this,” he says.