Bain to make full exit from Domino's Pizza Japan

DPE, an Australian Securities Exchange-listed company that serves as master franchisor for the restaurant chain in Australia and New Zealand, Japan and parts of Europe, did not indicate how much it would pay for Bain’s holding. It said in a statement that the proposed option exercise price was being reviewed and the purchase would be completed by August 28. In DPE’s 2016 annual report, the option is classified as a current liability worth A$43.7 million ($32.6 million).

The GP acquired Domino’s Pizza Japan in 2010 for a reported JPY6 billion (then $66.5 million) and sold a 75% stake to DJE three years later for JPY12 billion (then $123.4 million). The buyer agreed to provide JPY9 billion of new debt funding, implying an enterprise value for the whole business of JPY25 billion. Bain also secured an option to exit the rest of the business to DPE within 3-5 years at a valuation of 17.5x earnings. DPE had the right to buy the stake for the same price.

Domino’s Pizza Japan operates under a 20-year master franchise agreement that runs until March 2031, with an option to extend for a further 10 years. As of January, it had 472 outlets nationwide, of which 312 are wholly-owned and the rest franchised. There are plans to reach 850 outlets by 2022, chiefly by expanding the franchise network.

The company posted revenue of A$401.4 million – 43% of DPE’s total revenue – for the 12 months ended July 2016, up from A$702.4 million a year earlier. EBITDA increased from A$37.8 million to A$47.5 million over the same period. For the first half of 2017, underlying revenue reached A$225.1 million, compared to A$207 million in the first half of 2016. EBITDA rose from A$27.5 million to A$31.1 million.

When Bain bought Domino’s Pizza Japan – then known as Higa Industries – from a group of shareholders that included Duskin, the firm behind Japan's Mister Donut chain, Daiwa SMBC Capital, and promoter Matsuo Ernest Higa, it had 173 outlets. The business soon expanded beyond Tokyo and Osaka into tier-two cities like Nagoya, Kobe, Kyoto, Fukuoka and Sendai.

Domino’s Pizza Japan has since established itself as the country’s second-largest pizza chain after Four Seeds. Indeed, when KFC Holdings Japan agreed to sell Pizza Hut Japan to Phoenix Capital-controlled Endeavour United earlier this month, one of the reasons given for the divestment was intensifying competition in the space. The company had previously identified the threat posed by aggressive expansion by the Domino’s franchise.

The need to respond to DPE also prompted Yum Brands’ decision to sell the Pizza Hut Australia business to Allegro Funds last September.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• Trade sale
• Consumer
• Japan
• Bain Capital Asia
• Exit