MTY Food Group acquires sandwich maker Mr. Submarine for $23 million cash

MTY Food Group acquires sandwich maker Mr. Submarine for $23 million cash - By LuAnn LaSalle, The Canadian Press

MONTREAL - MTY Food Group Inc. is reaching beyond its presence in shopping mall food courts and sinking its teeth into the fast-food sandwich market with the acquisition of Mr. Submarine Ltd. for $23 million in cash.

The Montreal-based franchisor and operator of various quick service restaurants such as Thai Express, TacoTime and Sushi Shop said Thursday the purchase is its biggest to date, and will help it reach new customers.

"With three out of four Mr. Sub outlets being street front locations, the transaction will reinforce MTY's presence on the street," the company said in a statement.

Mr. Sub, a privately owned 43-year-old company, is one of Canada's best known fast-food chains, with 335 stores across the country that are under either franchise or operator agreements.

About 80 per cent of Mr. Sub's restaurants are located in Ontario with the rest spread out in six other provinces, MTY said. The Mr. Sub outlets will expand MTY's network to 2,070 restaurants

MTY (TSX:MTY) said the acquisition of Mr. Sub is in line with its strategy to acquire profitable chains that diversify its food offerings and strengthen its marketshare. In fiscal 2011, Toronto-based Mr. Sub generated sales of more than $100 million, it said.

The Quebec company also announced this week that it will acquire restaurant chain Koryo Korean BBQ Franchise Corp. for $1.8 million in cash. Koryo has 20 mostly franchised restaurants in Alberta, British Columbia, Ontario, Quebec and Saskatchewan generating annual sales of more than $8 million.

M Partners Inc. analyst Michael Krestell said the acquisition diversifies MTY's offerings outside food courts and adds to its geographic reach.

"Much of MTY's exposure right now is through the foodcourts and it's still quite heavily weighted towards Quebec," Krestell said from Toronto.

"Generally speaking, MTY has proven themselves to be very solid operators. They execute well across all of their brands and adding some of that expertise into the existing Mr. Sub infrastructure can only help them."

The sub shop business is intensely competitive in Canada, with major American chains, Subway and Quiznos, expanding aggressively in many markets and having about 3,000 restaurants between them.

Quiznos, based in Denver, Colo., is the second-largest submarine sandwich shop chain in North America, after Subway, with more than 4,000 Quiznos shops in the U.S. and 300 in Canada.

Subway, based in Milford, Conn., has about 35,000 restaurants around the world, with nearly 2,700 shops in Canada.

In its release announcing the friendly Mr. Sub deal, MTY said the transaction is scheduled to close before the end of October.

MTY also franchises the banners Country Style, Cultures, Yogen Fruz, Tiki-Ming, Sukiyaki, Panini Pizza Pasta and several other food banners.

In Thursday trading on the Toronto Stock Exchange, MTY shares rose 11 cents to $14.06