Diversified Royalty Corp Expands Portfolio with Cheba Hut Acquisition for $36 Million
- Diversified Royalty Corp. acquires Cheba Hut's trademarks for US$36 million, adding a ninth royalty stream to its portfolio.
- The acquisition includes a 50-year licensing agreement with annual royalty payments of US$4 million, adjusted for inflation.
- CEO Sean Morrison states the deal could increase DIV's adjusted revenue by 7%, enhancing financial stability and growth.
Diversified Royalty Corp Strengthens Portfolio with Cheba Hut Acquisition
Diversified Royalty Corp. (TSX: DIV and DIV.DB.A) announces a significant step in expanding its royalty portfolio with the acquisition of trademarks and intellectual property from Cheba Hut Franchising, Inc. for US$36 million in cash. This acquisition marks the addition of a ninth royalty stream, reinforcing DIV's strategic focus on diversifying its revenue sources. The transaction is particularly notable as it represents DIV's second foray into the U.S. market, highlighting the company's intent to broaden its operational footprint beyond Canadian borders. The deal is financed through a combination of an amended acquisition facility, contributing US$18 million, and new credit facilities amounting to US$5 million, showcasing DIV's robust financial standing.
The acquisition involves a licensing agreement wherein DIV grants the Cheba Rights back to Cheba Hut for a substantial period of 50 years. This initial agreement stipulates an annual royalty payment of US$4 million, which will adjust based on inflation or a minimum increase, ensuring a steady revenue stream that aligns with DIV's long-term financial strategies. Cheba Hut, known for its unique approach to fast-casual dining, operates 77 franchised locations and has shown promising growth with system sales of US$149 million in 2024, projected to exceed US$187 million by the end of 2025. This partnership is not only a financial investment but also a strategic alignment with a brand poised for continued expansion in the competitive restaurant landscape.
CEO Sean Morrison emphasizes that this acquisition could contribute around 7% to DIV's pro-forma adjusted revenue, further solidifying the company's position in the diversified royalty sector. The strategic partnership with Cheba Hut aligns with DIV's vision of supporting franchise growth while enhancing its overall revenue stability. Cheba Hut's founder, Scott Jennings, expresses optimism about the collaboration, noting the importance of DIV's support in fostering the brand's integrity and growth. With a strong financial foundation, DIV is well-positioned to capitalize on the potential of this acquisition, reinforcing its commitment to expanding and diversifying its royalty streams.
In addition to the acquisition, DIV's enhanced tax pools, which are expected to grow by approximately CAD$51 million to a total of CAD$424 million, create additional financial leverage. This tax advantage allows for further investment opportunities and solidifies DIV's operational capabilities in both established and emerging markets. The integration of Cheba Hut into DIV's portfolio exemplifies a strategic move to fortify its position in the royalty space while supporting innovative and growing brands in the restaurant sector.
