Famous Brands acquires Milky Lane

This morning Famous Brands announced the acquisition of well known outlets Milky Lane and Juicy Lucy from Java Brands for a price of R30.95 million.

Short term debt and existing cash reserves will be used to fund the acquisition. The company's market cap sits around R4bn so a R31 million acquisition is not hugely significant but it reiterates the company's business model of acquiring well known and established chains who have perhaps fallen to the way side in recent years and reviving their brand.

They also have a great supply chain already in place which will be able to support these franchises adequately.

CEO Kevin Hedderwick had this to say about the acquisition. "The acquisition of these iconic South African brands serves to further round off our franchised food service leisure portfolio. The compelling purchase consideration and synergies afforded by the integration of Milky Lane and Juicy Lucy into the Group`s business model make this transaction an exciting, low-risk one, which will deliver returns for shareholders from the outset." So some positive outlook from the CEO, that is to be expected, he would have organised the deal. So let's take a closer look at these two brands because after all, the reputation of the brand is what's going to make it successful and create franchisee interest.

Milky Lane is over 50 years old and is South Africa's original quick serve, ice cream and desert retailer with just under 100 outlets. Soft serve is the fastest growing ice cream category in the world at the moment and Famous Brand management reckon the brand is perfectly geared to benefit from South Africa's emerging market with loads of potential to open up new stores in areas of growing wealth.

Management were also seeking a dessert solution for their other brands so don't be surprised if you see Milky Lane brands being integrated into some of the other franchises. In terms of supply, Famous Brands have the Baltimore Ice cream plant with enough spare capacity to absorb the Milky Lane business. Sounds like a good fit.

Juicy Lucy has also been around for an age, over 40 years and has 18 franchises. Although it is a competitive industry, I really like the convenient health food sector as more people become health conscious yet time constraints forced by busy working lives hamper the cooking at home option. The brand definitely needs a revamp and more stores need to be opened but that is Famous Brands speciality. Expect to see a lot more of both these brands for here on.