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Famous Brands buys GBK in the UK

Before the market opened yesterday, Famous Brands announced that they are expanding their operations in the UK. They are paying 120 million Pounds for Gourmet Burger Kitchen or "GBK", a 75 store premium burger restaurant. These 75 stores will add to the current 83 Famous Brand stores already in the UK. In terms of value for money, GBK had an EBITDA of around 9.6 million pounds for the 12 months ending June 2016, so not cheap but not overly expensive. The question that we were asking in the office, "What exchange rate did they get?". The company locked in an exchange rate of GBP/R 17.54, getting near the strongest levels of the post Brexit Pound crash. On that exchange rate it will cost them around R2.1 billion, Kevin Hedderwick on TV yesterday said Brexit saved them around R800 million, compared to the price they were first looking at paying.

This means that we will have another burger shop on the block in South Africa. If it is in the same league as Rocco Mamma's it should do well (assuming the gourmet burger trend continues). I think that this is a good move from the company, they are becoming more global with a move into a country where they already have experience, logistical systems and partnerships in place. The Famous Brands market cap is currently R15.1 billion (including the 25% spike when the market got a whiff of this deal), so the R2.1 billion acquisition is roughly 14% of their market cap. Remember that Famous Brands has no debt on their balance sheet at the moment, so this deal will bring with it some leverage which can be a good thing.


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