Fawaz Alhokair Group to buy restaurants and cafes in 340m riyals deal

Retailer acquires Innovative Union Company from Food and Entertainment Company

Changing dynamics in Saudi Arabia could encourage more local spending. Photo: Bloomberg

Saudi Arabia's listed retailer Fawaz Abdulaziz Al Hokair, which owns the franchise for brands such as Zara and Banana Republic, agreed to buy restaurants and cafes in a deal valued at 340 million riyals (Dh332.9m).

The retailer signed an agreement to purchase 100 per cent of Innovative Union Company from Food and Entertainment Company, which is indirectly owned by Saudi FAS Holding, it said in a statement to the Saudi stock exchange Tadawul on Monday. The deal is expected to contribute to the company's earnings per share from the first year of acquisition.

"This exciting transaction marks our company’s successful expansion into the food and beverage sector," Marwan Moukarzel, chief executive of the company, said. "The acquisition gives us a kingdom-wide portfolio of strong brands that cover a wide range of tastes and products and fast-growing challenger brands with significant growth potential."

The proposed acquisition will contribute to "a better financial position" for the company, it said. Innovative Union will also help to improve sales volume, increased profitability and product diversification, in line with the company's future strategy, said Mr Al Hokair.

The acquisition of Innovative Union will add 10 international brands and more than 200 branches around the kingdom to Al Hokair's portfolio, with plans to open 80 new branches during the next five years, it said.

Future growth will focus on high-margin Quick Service Restaurant (QSR) businesses — such as Cinnabon, Mama Buns and Seattle’s Best Coffee — that can expand quickly with lower capital investment and maintain a higher return on investment, the company said.

To pay for the purchase, Al Hokair will exchange some non-core receivables as reported on its balance sheet at the end of March with Food and Entertainment Company, and will not make any cash payment for the transaction, the company said.

The agreement is subject to a number of conditions that must be met on or before December 31 and are pending obtaining regulatory approvals. The deal is expected to be completed by the fourth quarter.

Under the agreement, Food & Entertainment Company will be liable to compensate Fawaz Abdulaziz Alhokair if the financial performance of Innovative Union Company falls short of projections set until 2020 it said, without specifying the targets.

Al Hokair appointed Swicorp as financial adviser on the acquisition, Turkistani and Alabbad Law Firm as legal advisers, PWC as financial due-diligence advisers and Advention Business Partners as market due-diligence advisers.

Innovative Union specialises in food industry and services. In the fiscal year ended 2019, the company's sales reached 355m riyals and earnings before interest, tax, depreciation and amortisation of 54m riyals, according to the statement, which did not provide comparative figures.

The main brands in the portfolio are Seattle’s Best Coffee, Cinnabon, Mama Bunz, and Molten Chocolate Café. Casual dining brands include Crêpe Affaire, Life with Cacao, Turkish coffee chain Kahve Dünyasi, Caffe Concerto, the restaurants Azal and Bluefin, and Sütiş.