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Nov 15, 2021

Restaurant Brands buying Firehouse Subs for US$1B

Firehouse Subs fits the template for what Restaurants Brands International is looking for: Analyst

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Restaurant Brands International Inc. is bulking up in the sandwich department.

The fast-food conglomerate announced Monday morning it’s buying Firehouse Subs for US$1 billion in cash.

According to a release, Jacksonville, Fla.-based Firehouse has approximately 1,200 restaurants and has seen its year-to-date U.S. same-store sales rise 20 per cent through October compared to the same period in 2019. Firehouse said it’s expecting to generate US$1.1 billion in full-year sales and anticipates approximately US$50 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

Restaurant Brands said it’s planning to fund the deal with cash on hand and debt, and it expects the deal will close in the coming months.

In an interview Monday, Restaurant Brands Chief Executive Officer José Cil said his team was drawn to Firehouse because of its franchisees’ connection to their communities, the chain’s attractive economics, and its core sub offerings -- which he described as “very savoury and tasty, and piled high with really reasonable portions.”

The connection to the community is forged through the Firehouse Subs Public Safety Foundation, which the company says has provided US$62.5 million to organizations in Canada, 46 U.S.states, and Puerto Rico.

The deal adds to Restaurant Brands’ stable of brands, which includes Tim Hortons, Popeyes Louisiana Kitchen and Burger King.

Subsequent to the deal closing, Restaurant Brands said Firehouse would continue to be run by its chief executive, Don Fox, and Chief Financial Officer Vincent Burchianti.

Cil indicated in the interview that Restaurant Brands has been working on the deal with Firehouse for the last six weeks or so, and dismissed any notion that his company is pouncing at a moment of weakness for Firehouse as the fast-food industry navigates the pandemic.

“I think for the (Firehouse) co-founders, it was a moment they felt it was important to find a steward for the brand going forward. We've had a lot of discussions around the importance of maintaining the values and the culture and being able to drive this brand forward for accelerated growth.”

The timing of the deal did catch at least one analyst off guard. Andrew Charles from Cowen said he was surprised given the work that’s already underway at two of Restaurant Brands’ other banners.

“While the acquisition is small, we fear the acquisition poses distraction risk to the sales recovery at Tim’s Canada and [Burger King] U.S.,” he wrote in a note to clients.

Charles said he expects the purchase of Firehouse will immediately boost Restaurant Brands’ adjusted earnings after it closes. He has a "market perform" (the equivalent of a hold) recommendation on shares of Restaurant Brands, with a price target of US$62.00 on the company’s New York-listed shares.

BofA Securities and J.P. Morgan Securities advised Restaurant Brands on the deal. Firehouse was advised by TD Securities.