BreadTalk founder George Quek is coming full circle with the food and beverage company's latest move - a proposed complete acquisition of Food Junction, a foodcourt operator he had helped start in 1993.
Analysts said BreadTalk Group's plan to buy Food Junction Management for $80 million marks a further consolidation in the foodcourt and coffee shop market as larger firms continue to take out smaller ones in seeking market share and growth.
The proposed acquisition will be paid in cash funded through BreadTalk's internal resources, including available cash on hand, and debt facilities, the company said in an announcement on the Singapore Exchange yesterday.
BreadTalk's wholly owned subsidiary, Topwin Investment Holding, entered into a sale and purchase agreement for the move on Aug 30.
The acquisition is set to make BreadTalk the third-largest foodcourt operator here, behind NTUC Enterprise - which announced it would buy food centre operator Kopitiam last year - and Koufu.
DBS analyst Alfie Yeo said: "With NTUC Enterprise buying Kopitiam in 2018, Broadway buying S-11 last year as well, and now BreadTalk buying Food Junction, the market for foodcourts and coffee shops is indeed consolidating."
As of June 30, BreadTalk operates 14 foodcourts in Singapore and two in Malaysia under the Food Republic and Food Opera brands.
But Mr Yeo said that while the transaction value is $80 million, this is for a business whose net profit in the first half of this year was just $3,183. In the 2018 financial year, it recorded a net loss at $1.7 million. With Food Junction's net tangible assets valued at $12.3 million, this implies a price-to-book ratio of over six times, he added.
The ratio compares a company's market value to its net assets. In comparison, Koufu has a price-to-book ratio of less than four times.
Mr Yeo said there could be some drag on earnings per share in the short term, with interest cost from the loan for the acquisition weighing on BreadTalk. But he said Food Junction seems to be turning around with headline earnings in the first six months of this year improving.
Key players in foodcourt sector
Food Junction has 12 foodcourts in Singapore and three in Malaysia, with one more to open in Johor Baru next year.
These are the main players in the Singapore foodcourt scene.
A holding entity of NTUC Foodfare, which is under the National Trades Union Congress' social enterprise arm. It announced the acquisition of Kopitiam last year, raising its overall count of food outlets to more than 100, with 70 foodcourts.
Co-founded by Mr Pang Lim and his wife Ng Hoon Tien in 2002, it launched its initial public offering in July last year, and expects to bring its total number of foodcourt outlets to 53 and coffee shops to 16.
Founded as a bakery brand in 2000 and listed on the Singapore Exchange in 2003, it operates 14 foodcourts in Singapore as of June 30 this year. It also has a presence in Malaysia, China, Hong Kong, Taiwan, Cambodia and Thailand.
"Foodcourts are a high fixed-cost business. Once revenue exceeds fixed costs, there is going to be a high margin potential," he said.
But there are benefits to strengthening market share and the store network, he added. For instance, a larger network provides scale to compete better in the market.
BreadTalk yesterday said the planned acquisition will allow it to obtain additional revenue streams and "benefit from the synergies" with its existing businesses. This can be done through streamlining of costs and sharing of resources.
CIMB Private Banking economist Song Seng Wun believes that beyond economies of scale, the move is also driven by growing wealth in Asia and a plan to tap larger markets outside Singapore.
Food Junction provides another food option that BreadTalk can take with it abroad, he said.
BreadTalk already has close to 1,000 outlets across 16 countries, under brands such as Toast Box, and franchise partners like Din Tai Fung and Song Fa Bak Kut Teh. It plans to open its first Song Fa outlet in Taiwan in the second half of the year.
Associate Professor Lawrence Loh of the National University of Singapore Business School said he expects the foodcourt segment to continue to be a highly relevant one.
"Going forward, if the economy is not doing well, disposable income will go down and people will move down the ladder in consumer habits. This includes food, with people going to restaurants less. I expect this will happen soon, if uncertainty in the economy creeps into the consumer space."
The seller, Food Junction Holdings, is 98.1 per cent owned by Auric Pacific Group, a Singapore-incorporated investment holding company involved in businesses ranging from food manufacturing to retailing to restaurants.
About 50 per cent of Auric Pacific Group is held by Lippo China Resources through its subsidiaries. The remaining 49.7 per cent is held by the chairman and executive director of Lippo, Dr Stephen Riady, and his son-in-law, Dr Andy Adhiwana, through companies they own.
Auric Pacific Group said it "undertakes strategic reviews of its businesses from time to time with a view to maximising returns to its shareholders, and considers the proposed acquisition allows it to unlock value and realise its investment".
BreadTalk shares closed down 2.2 per cent to 66.5 cents yesterday.