Cara Operations Ltd. (TSX:CAO) is currently the oldest full-service restaurant company in the Canada. The company has over 1,000 locations and a small but growing presence internationally. Of those domestic locations, the vast majority are located in Ontario.
While you may not have heard of Cara before, you will no doubt be familiar with the assortment of brands that Cara owns, including Harvey’s, Swiss Chalet, Milestone’s Montana’s, Kelsey’s and Casey’s.
Cara now has another brand to add to its portfolio: Montreal-based Groupe St-Hubert in a reported deal worth $537 million.
Let’s take a look at some of details of the acquisition, and what this means for investors.
Location, location, location
The iconic St-Hubert chicken restaurant has been around since the 50s and has over 100 locations–nearly all of them in Quebec. Cara, on the other hand, has limited exposure to the province.
The purchase of St-Hubert effectively allows Cara to increase the number of locations it has by over 10%; it’ll gain an expanded, mature footprint in Quebec. This sentiment was echoed by Cara CEO Bill Gregson: “For Cara, this is also an opportunity to solidify a more significant presence in Quebec.”
That would be an understatement. Quebec is a notoriously hard market to puncture for nearly any business. The fact that Cara is able to acquire a well-known business like St-Hubert, which already has a sizeable presence and following, is sure to be great for investors.
Food manufacturing
One other strong point in the transaction is St-Hubert’s food manufacturing business; it accounts for significant sales through external grocery chains. The company already has an assortment of soups, broths, sauces, and entrees available for purchase. With the added weight and financial muscle of Cara, those products could make their way onto even more shelves or, even better, additional Cara brands could make it into stores.
Strategically, this is a great fit for Cara, which could see much higher revenue streams in the form of Cara brands in Quebec and St-Hubert brands outside the province. The market has reacted well to the announcement so far, and for good reason. At the time of writing, Cara is up an incredible 16% for the day, having pushed past $30 per share.
In my opinion, Cara represents a great option for investors looking to diversify by adding a stock in the restaurant sector that has a significant long-term growth opportunity.
