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Domino’s Pizza to Enter German Market

Domino’s Pizza to Enter German Market
Dec 16, 2015 By Imran Valibhoy Tags: DMP

Domino’s Pizza Enterprises (ASX:DMP), the Australian branch of the Domino’s Pizza organisation, has informed investors about the proposed acquisition of German delivery chain ‘Joey’s Pizza’ and the formation of a joint venture.

Overview of the Domino’s Pizza Deal

Domino’s Pizza Enterprises Ltd (DPE) and UK listed Domino’s Pizza Group plc (DPG) have announced a newly formed joint venture, successfully finalizing a deal and purchase agreement with the owners of ‘Joey’s Pizza’, a chain of stores in Germany for up to €79 million (A$120 million).

Joey’s Pizza is the biggest pizza chain in all of Germany, with over 210 stores within Germany. Joey’s Pizza has forecasted that it will generate €7 million of EBITDA for the year ended 31st December 2015.

This new venture is a significant milestone for Dominoes, as the company aims to expand their market share within Europe, where they have already approximately 775 stores. However, the acquisition is subject to regulatory and other customary approvals. It is expected to be completes during Q1 2016.

New Joint Venture of Domino’s Pizza and UK Franchise

DPE and DPG will form a joint venture (“JV”), which will be owned two-thirds by DPE and one-third by DPG. DPE will have full operating, board and management control within the JV, with some minor exceptions for DPG. The structure of the JV utilizes DPE’s regional expertise, such as their management and infrastructure in the Netherlands.

The JV will acquire the business and approximately 10-15 of DPG’s stores in Germany. DPG will be granted to receive payments on an annual basis, for up to 6 years. Total amount of these payments will vary, depending on profitability, along with being capped at €25 million.

Moreover, the CEO’s of Joey’s Pizza have been preserved within the JV, in order to assist with the conversion of Joey Pizza stores into Dominoes stores.

The purchase price of Joey’s Pizza is comprised of several payments, with €45 million payable upon the completion of the transaction, along with subsequent payments for up to €34 million. However, it is subject to earn-out criteria, for over 36 months following closing.

The JV expects the vast majority of criteria to be met, and that the full €79 million will be payable.

The majority of DPE’s consideration of their initial portion of the acquisition and related costs will be paid in cash from new debt facilities, with DPE’s share being €39 million in total.

The vendors of Joey’s Pizza have agreed to have the equivalent of €5 million be paid out through the issue of 148,206 DPE shares.

Domino’s Targets Earnings Growth of 30%

The Transaction is expected to only have a small impact on DPE’s underlying forecast EPS, due in part to the earnings contribution from the JV being for part of the year. Their underlying forecast EPS will also be affected by the transaction and brand conversion costs, being between €5-8 million.

Reliant on the Pizza Sprint and German transactions being completed early 2016, DPE is aiming for underlying EBITDA and NPAT growth to be around 30%, in comparison to the prior corresponding period.

DPE’s CEO, Mr Don Meji, commented on the acquisition: “Germany is the fourth largest pizza market in the world and our entry into this market represents an exciting long term growth opportunity for DPE.”

Investors reacted very positively to the announcement as DMP shares surged more than 12% upon opening, as at 10.30am. On the back of consistent earnings growth and opening of more stores, DMP has garnered investors a 120% return year-to-date. DMP has had considerable growth over the last 10 years, with shares rising more than 1400% during that period.

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Imran Valibhoy Author: Imran Valibhoy Dec 16, 2015

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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