If you’re dining out tonight, there’s a good chance you’ll end up perusing the menu at one of almost 950 restaurants linked to Fairfax Financial Holdings Ltd.
The Toronto-based insurer and investment manager said Monday it would acquire a controlling stake in Keg Restaurants Ltd., marking a second recent investment in an industry that Fairfax said has considerable opportunity to consolidate.
Fairfax takes on 51 per cent of Keg Restaurants from the company’s chief executive, David Aisenstat. He will stay in this leadership role and maintain ownership of 49 per cent of the company.
This is the second deal in the restaurant business for Fairfax in the past month. On Halloween, the company sold its Prime Restaurants Inc. business, parent of East Side Mario’s and a chain of Irish pubs, to Cara Operations, owner of brands such as Swiss Chalet and Harvey’s. Although the terms of the deal weren’t disclosed, Fairfax did wind up with a stake in Cara as a financial partner.
At that time, Fairfax president Paul Rivett said the combined company, with more than 50,000 employees and $1.7-billion in sales, could one day be a “global made-in-Canada success story.” Cara noted there would be opportunities for growth, acquisitions and sharing best practices as the companies combined. After the Keg deal Monday, Mr. Rivett said the restaurant industry has considerable opportunity to build scale.
Mr. Rivett also said that having the right leaders in place was important. Mr. Aisenstat, for example, has deep roots in the restaurant business—his father, Hy Aisenstat, founded the chain of Hy's Steakhouses.
“Fairfax will bring additional expertise and resources to The Keg and we are excited at the opportunities available to The Keg moving forward through this relationship,” Mr. Aisenstat said in a statement.
Keg Restaurants pays royalties to The Keg Royalties Income Fund, a publicly traded group that collects royalty income of 4 per cent of gross sales of corporate and franchised Keg restaurants.
Keg Restaurants reported gross sales of $114.4-million in its second fiscal quarter ended June 30, down 3.5 per cent from a year earlier after the company closed three restaurants in the first quarter.
According to the income fund’s quarterly report, restaurant management “believes that as economic conditions and consumer sentiment continue to improve in North America, sales for The Keg will also improve, leading it to once again outperform the full service category with respect to same store sales growth.”
Economic softness was one of the reasons Fairfax was able to invest in Prime in 2011. Prime had run as an income trust, but government changes limited the profitability of that structure. The market was still reeling from the recession when Prime became a publicly traded company in 2010. The next year, Fairfax outbid Cara by $12-million for Prime, paying $71-million for the business.
“Fairfax is a well-known and proven investor in the Canadian market,” Kip Woodward, the fund’s chairman, said in a statement. “With the addition of Fairfax to the Keg team, The Keg is well positioned and has a solid foundation for continued growth, which will benefit the fund and its unitholders.”
The foray into food shows the span of Fairfax’s investment interests. The investment company recently took part in a $1-billion (U.S.) financing agreement with BlackBerry Ltd., having failed to execute on an earlier letter of intent to lead a consortium that would take the smartphone maker private for $4.7-billion.