BRISBANE-based Domino's Pizza Enterprises (ASX:DMP) has teamed up with its UK-listed counterpart to buy into a joint venture that will take significant bite of the German fast-food market.

Domino's Pizza Enterprises will take a two-thirds interest in Joey's Pizza, Germany's largest pizza delivery chain, in a deal that could cost up to $121 million.

The remainder will be held by Domino's Pizza Group plc, which has the master franchise agreement for Germany.

The Joey's chain, established by Carsten Gerlach and Christian Niemax 27 years ago, has 212 stores with annual revenue of about $217 million. All but three are franchised stores.

The joint-venture partners are paying an up-front fee of $69 million for the business, with an additional earn-out fee of $52 million should the business reach prescribed financial targets over the next six years.

The deal will also see the joint venture acquire up to 15 existing Domino's Pizza stores in Germany, currently owned by the UK partner, for up to $4.5 million.

Gerlach and Niemax have agreed to receive 148,206 Domino's Pizza Enterprises shares, or the equivalent of about $7.6 million, as part of the purchase agreement.

Domino's Pizza Enterprises says the acquisition, to be completed in the first quarter of 2016, will be earnings accretive. However, due to the short period of ownership during FY16 it will have minimal impact on underlying earnings in the current financial year.

Reported earnings per share will be impacted by between $7.6 million and $12 million due to transaction and brand conversion costs in FY16.

Joey's is expected to deliver EBITDA of about $10.6 million in calendar 2015. On a pro-forma basis, this would have delivered a 4-5 per cent increase in underlying earnings per share for Domino's Pizza Enterprises in calendar 2015.

The deal will boost Domino's Pizza Enterprises' store count to 1870, with 775 of those in Europe where it has a presence in The Netherlands, Belgium and France.

All Joey's stores will be rebranded Domino's, and Gerlach and Niemax are staying on for a period to ensure a smooth transition.

"Germany is the fourth-largest pizza market in the world and our entry into this market represents an exciting long-term growth opportunity for PE," says Domino's Pizza Enterprises CEO Don Meij.

"The acquisition of the market-leading Joey's Pizza business provides immediate scale and marketing presence which we can build from. We look forward to partnering with the existing Joey's Pizza franchisees to leverage the expertise that our regional, and increasingly global, platform provides in terms of our digital offering, procurement and product innovation.

"We will ensure that our offering reflects the unique tastes of German customers."

Despite its UK partner holding a one-third stake in the venture, Domino's Pizza Enterprises effectively will have full operational, board and management control over the joint venture.

Meanwhile, Domino's Pizza Enterprises has upgraded its store openings target in FY16 to between 480 and 500 following the German acquisition. The company has a long-term target of operating between 1500 and 2500 stores across Europe.

Shares in Domino's Pizza Enterprises surged more than 8 per cent today on news of the acquisitions, closing at $53.44.

Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support

How to conduct an effective board assessment: a step-by-step guide
Partner Content
Your directors should conduct a board assessment annually. Let's examine what a boa...

Related Stories

“Lifting up your eyeline”: Lessons on ambition from the founder of a unicorn

“Lifting up your eyeline”: Lessons on ambition from the founder of a unicorn

While today ed-tech Go1 is a 'double unicorn' with a global...

TGA approves MDMA, psilocybin for mental health treatment

TGA approves MDMA, psilocybin for mental health treatment

Australia’s therapeutics regulator has announced today that p...

Stockbroker Wilsons slapped with half a million dollar fine

Stockbroker Wilsons slapped with half a million dollar fine

Wilsons Advisory and Stockbroking (Wilsons) has paid a Markets Disc...

Love is in the wallet: Australians to splurge $485m on Valentine’s Day

Love is in the wallet: Australians to splurge $485m on Valentine’s Day

Vibrant bouquets and sweet treats are high on the agenda for Austra...