Cara owns brands such as Swiss Chalet, Harvey’s and Milestones.
The CEO of Cara Operations Ltd. says the company's recent IPO puts it in a position to make new acquisitions – Something Cara's previously high debt load did not allow.
Pre-IPO, Cara had $278-million in debt with a debt/EBITDA ratio of 3.1 "which doesn't allow you any room to go and do an acquisition." said Bill Gregson in an interview. Cara had earmarked funds raised from the IPO to pay down debt. Earlier this month, Cara whipped up $230-million in a hugely successful public offering with demand for the shares outstripping supply by a factor of 20 to one. On its first day of trading the company's stock rose 43 per cent.
Cara, which was founded in 1883 as a seller of newspapers and confectionery to train and steamship passengers was taken private by the founding Phelan family in 2004 in a leveraged buyout which left the company with almost half a billion dollars in debt. To raise cash Cara sold off its airline catering and coffee business. Mr. Gregson was hired in Oct 2013. He had previously been CEO of the Brick Ltd., which was acquired by Leon's Furniture Ltd. in March 2013.
Mr. Gregson declined to answer when Cara might make its next acquisition but its last big one was in 2012 when it acquired Prime Restaurants Inc. whose brands include Casey's and the Bier Markt for $69.6-million. Mr. Gregson says future acquisitions will be financed through debt as opposed to equity.
"Debt is cheaper than equity" he said. "Interest rates are low. You can deduct for tax purposes, versus equity where you increase the number of shares outstanding which reduce your earnings per share."
Mr. Gregson also defended the company's decision to come to market with two classes of shares, one that allows its two biggest shareholders, the Phelan family and Fairfax Financial Holdings Ltd. 25 votes for every one vote the general public gets. The dual class structure was a FairFax initiative he says, which "ensures decisions that are made are in the best interests of the company in the long-term."
Fairfax has long embraced the dual class share model. Fairfax itself is structured as a dual class company as is FairFax India Holdings Corp., which went public earlier this year.
"It's [dual class share structure] not for everybody. Everybody is free to vote. But a lot of people voted in terms of their orders."
Niall McGee