Domino’s Pizza Group Plc (LON:DOM), which holds the master franchise for US pizza delivery company Domino’s Pizza (NYSE:DPZ) in the UK, Ireland and Germany, said today it had agreed to buy the business of Domino’s Pizza Switzerland AG for a maximum of CHF7m (USD7.3m/EUR5.8m) in cash.
Through the purchase, the company will add 12 more stores, which generate annual sales of CHF12m. The target also plans to open at least 25 further stores over the next five years. According to the group, the Swiss network could be further expanded to reach some 65 outlets.
As part of the agreement, the buyer will initially pay CHF5m on completion and up to CHF2m, depending on the sales performance of the target’s existing stores over a two-year period. The deal also includes a master franchise agreement (MFA), under which the company will get the exclusive right to operate and franchise Domino’s stores in Switzerland, Liechtenstein and Luxembourg as well as an option to acquire the MFA for Austria until the end of 2014.
Domino’s Pizza Group said that the Swiss market offers attractive opportunities due to the current growth of quick service restaurant sector and the country’s predominantly metropolitan-based population. As the brand is not well recognized at present, the buyer intends to take measures to improve product quality and intensify the focus on delivery service and online sales. It also plans to make investments in refurbishing the existing stores or moving some of them to stronger locations.
The company said it expects to incur a short-term loss of CHF750,000 in 2012 as a result of these measures, which, however, will have a positive impact on the Swiss business in 2014.
Completion of the deal is seen in late September and is subject to the seller’s shareholder approval. With the latest purchase, the company will hold the master franchises for seven European countries, out of a total Domino’s global business of 73 international markets.