Famous Brands has acquired the franchise agreements, trademarks and intellectual property of Milky Lane and Juicy Lucy from Java Brands for R30.95 million.
The acquisition will be funded through a combination of existing cash reserves and short-term debt, and will be earnings enhancing, the company said. The transaction is subject to successful fulfilment of conditions precedent and is effective 1 March 2011.
Famous Brands' Chief Executive Officer, Kevin Hedderwick, commented: "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."
Craig MacKenzie, Java Brands' Director, said the transaction heralds an exciting phase in the life cycle of the much loved Milky Lane and Juicy Lucy brands. The highly developed support infrastructure and the economies of scale introduced to the business by Famous Brands are likely to add significant value to the franchised partners. Both concepts are well positioned to benefit from Famous Brands' proven formula for enhancing and growing world-class brands."
Milky Lane was launched some 50 years ago by Famous Brands' founder George Halamandres, and currently consists of 96 franchised outlets.
Hedderwick said the rationale for the acquisition is comprehensive. "Milky Lane is the soft-serve ice cream category leader, which aligns with the Group's strategy to grow its portfolio of best in class franchised leisure brands. Furthermore, soft-serve is the fastest growing ice cream category in the world at the moment, and continues to gain traction in South Africa too."
"As the emerged market continues to enter the mainstream economy, driving growth in this category, there is an opportunity to extend the Milky Lane footprint in terms of store numbers, through both the existing sit-down as well as take-away trading formats, thereby improving accessibility to prospective franchisees and mass market consumers," he said.
"Notwithstanding the emerged market opportunities, Milky Lane's product offering is one of South Africa's best kept secrets but the brand needs to be reawakened and re-communicated to South African consumers at large. The menu and product innovation that currently exist for Milky Lane are world-class, but consumer awareness thereof is negligible. This in itself represents significant upside for existing store growth."
"Another key factor supporting this acquisition is that for a long time we have been exploring dessert solutions for certain of our other brands and hence we will be investigating the opportunity to extend the Milky Lane brand and or parts of the Milky Lane intellectual property into a `store within a store' concept across other parts of our network."
"A significant driver surrounding this acquisition is our ability to backward integrate the supply of soft-serve ice cream to the existing Milky Lane network via our Baltimore Ice Cream plant which has the spare capacity to take on this business. This additional manufactured volume on its own is a compelling case to acquire the Milky Lane business and significantly reduces the price : earnings hurdle rate."
Juicy Lucy has been in existence for 40 years, currently trades out of 18 franchised restaurants nationally.
"Juicy Lucy pioneered a niche in the health-centred convenience food category, and whilst the brand has lost its way over time, the potential to restore this offering to its former status is evident, more so given the current shift by consumers to health-conscious eating," Hedderwick noted.
"Juicy Lucy is a well-loved niche South African brand which affords us the opportunity to fill a gap in our portfolio. We have for some time been evaluating a range of specialist and stand-alone health food-focused type brands and are happy that Juicy Lucy offers the Group entry into this category."
"Our acquisitions aim to achieve several strategic objectives: ensuring a synergistic fit with our business model and core competence of food service franchising; the opportunity to be a leading player in the categories in which we compete; and unlocking value for shareholders. I am delighted that this transaction comprehensively meets those criteria," Hedderwick concluded.