Food filing: Owner of Harvey’s, Swiss Chalet plans IPO

Canada’s restaurant giant Cara
Operations Ltd. is looking to take a big bite out of the public markets,
in a move that would bring brands such as Swiss Chalet, Milestones and Harvey’s to the Toronto Stock Exchange.

Vaughan, Ont.-based Cara, a company that dates back to the 1800s, filed for
an initial public offering in Toronto on Friday.

Cara is one of the largest restaurant operators in the country. There are 10
big brands under the Cara banner, which also includes Montana’s and Kelsey’s.
Altogether, Cara has 837 restaurants from coast to coast, and 89 per cent are
operated by franchisees.

Cara has deep Canadian roots. The Phelan
family founded the company in 1883 as a business that provided newspapers, food
and other supplies to passengers on trains and steamship lines in Southern
Ontario.

Over the years, the company expanded into hotels, airline catering and
restaurants. It was taken private in a leveraged buyout in 2004, which saddled
it with debt.

There have been a lot of changes at Cara in a few short years.

In
2013, Cara bought Prime Restaurants Inc. –
parent of East Side Mario’s and a chain of Irish pubs – from Fairfax Financial Corp.

Fairfax also helped Cara recapitalize,
contributing $100-million and taking a stake in the company. The Phelan family and Fairfax are the two major stakeholders in
Cara.

After
the Prime acquisition, Cara brought in new management to try to boost its
financial performance, including hiring chief executive officer Bill Gregson, who was formerly head of the Brick Ltd.
and has both franchise and retail experience. The company cut head office staff
by 15 per cent, shook up the marketing strategy and closed some unprofitable
restaurants.

A
little over a year later, this IPO would mark a return to the public markets for
Cara.

In
2014, the company increased its sales by nearly 24 per cent, according to Cara’s
prospectus. The company also said earnings before interest, taxes, depreciation,
and amortization (EBITDA) rose 84 per cent to $83.6-million. The company plans
to close more restaurants and open others in 2015 for a total of 14 net new
stores.

The
IPO move follows a rash of activity in the food industry. U.S. burger chain
Shake Shack’s IPO in late December valued that company at about $1.6-billion
(U.S.).

Tim
Hortons
Inc. and Burger King Worldwide Inc. in August announced a $12.5-billion
(Canadian) merger. The majority of the combined company, Restaurant Brands
International, is owned by Brazilian private equity firm 3G Capital Inc.

With
the IPO proceeds, Cara plans to pay down debt, which stood at $278.4-million as
of Dec. 30. The company said it will also seek restaurant acquisition
opportunities.

Cara
intends to have two classes of shares: subordinate voting shares, which are
being offered in the IPO, and multiple voting shares. The latter group of shares
will be held by Fairfax and
the Phelan
family. The multiple voting shares are entitled to 25 votes, instead of one.
Cara intends to pay quarterly dividends.

Fairfax also has a controlling stake in Keg
Restaurants Ltd., which is not part of the stock sale.