Can MTY Food Group’s Latest Move Take it to the Next Level?

MTY Food Group finally gets into the coffee market with the acquisition of Cafe Depot, Muffin Plus and Sushi Man in Quebec.

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MTY Food Group (TSX: MTY) was bound to make an extra franchise acquisition this year and Chief Executive Officer Stanley Ma did not waste any time by acquiring not one, but three franchises in a single transaction.

With the acquisition of Cafe Depot, Sushi Man and Muffin Plus, MTY Food Group is bolstering its offering of products, especially for the morning rush. The acquisition will cost the company $14.8 million and will be paid with a mix of cash and the use of a revolving credit line.

All three companies combined had over 100 stores under operation in 2013 generating $42 million in sales. The transaction in my assessment is good from a business strategy standpoint because MTY Food Group never owned a pure offering for morning commuters. With both Muffin Plus and Cafe Depot it now has a decent presence in Quebec. Down the road, management is confident it can achieve meaningful synergies between the existing brands currently under the MTY Food Group umbrella and the new acquisitions.

The bad news is that their competitor in this segment is Starbucks. No one has been able to achieve the level of success that Starbucks has when it comes to coffee, and the company is starting to roll out a real breakfast menu, which should be available across Canada in the next two years.

Only time will tell if MTY Food Group can achieve the level operating excellence it is known for in this new sector. The deal is subject to several closing conditions and could fall through, but one thing is for certain; we cannot accuse Stanley Ma of not being aggressive about growing his business.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor François Denault has no positions in any of the stocks mentioned in this article. David Gardner owns shares of Starbucks. Tom Gardner owns shares of Starbucks. The Motley Fool owns shares of Starbucks. MTY Food Group is a recommendation of Stock Advisor Canada.

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