Domino’s Pizza Group has formed a joint venture to acquire Joey’s Pizza, the largest pizza delivery operator in Germany, in a deal worth €79m (£57.6m).
The company has formed the joint venture with the Australian-based Domino’s Pizza Enterprises to make the acquisition, with Domino’s Pizza Group owning one-third of the venture, while Domino’s Pizza Enterprises will own the majority.
The pair will initially invest a total of €58m in the venture to part-fund its planned acquisitions and costs. Domino’s Pizza Group’s share of that investment is €19m.
Domino’s Pizza Group chief executive David Wild said: “This is a transformational deal for our German operations, creating the new market leading pizza delivery operator. Our strategic stake in the joint venture positions DPG to capitalise on the significant future growth potential of this profitable and scaleable business.”
The new joint venture will initially pay €45m for Joey’s Pizza, which has 212 stores across Germany. Further payments depend on earn-out criteria being met. The acquisition will create a pizza delivery operator with c227 stores in Germany.
Domino’s Pizza Group said the deal will boost its earnings on an underlying basis in 2016. Joey’s is expected to generate system sales of about €143m and pro forma, underlying EBITDA of c€7m in 2015 as a whole.
Domino’s Pizza Group also reiterated its guidance from mid-October, when it said it had a “strong performance” in the third quarter and a “solid start” to the fourth quarter.
The joint venture has also agreed to acquire the master franchise rights for the Domino’s brand in Germany. Domino’s Pizza Group will receive a fee of up to €25m in exchange for the transfer of the master franchise agreement to the German joint venture. The fee is to be paid in six annual instalments, depending on the profitability of the venture.
It currently operates 20 stores in Germany, and up to 15 of those will be transferred to the venture, with the remainder to be closed. In addition the commissary in Berlin and the head office in Dusseldorf will close, the group said.
Total closure costs will result in a £7.3mcharge, to be taken in the 2015 financial year. The group will fund its investment in the German JV from its existing cash resources and facilities.
The company said there has been a “significant improvement” in the performance of its existing German operations in the current financial year, having made an underlying loss of £7.3m in the year ended December 28, 2015. The group expects losses in Germany to amount to £3.5m in the current year.
Domino’s Pizza Group has a put option, enabling it to sell its stake in the German joint venture at any point after the end of 2019, while Domino’s Pizza Enterprises has a call option enabling it to buy the London-listed group’s stake which can be exercised following 2021.
Don Meij, chief executive of Domino’s Pizza Enterprises, said: “Germany is the fourth largest pizza market in the world and our entry into this market represents an exciting long term growth opportunity for DPE. We look forward to working with DPG as a strategic partner and are excited at acquiring the market leader in Joey’s.”