DP Poland (LON: DPP) has agreed the acquisition of rival Poland-based pizza restaurant group Dominium for £22.7m in shares and loan notes of €7.5m. This reverse takeover will nearly double the number of stores to 126 and provide economies of scale.
The combined group will be one of the top three pizza chains in Poland. Competition has been fierce, and the group will be better placed to combat this. On its own DP Poland has struggled to grow revenues to the point where it can be consistently profitable.
Domino’s Pizza Inc is supportive of the deal and there will be temporary branding of Dominium by Domino’s. Five new sites could be opened in 2021 with the potential to accelerate openings in 2020.
The DP Poland chief executive resigned in November and Dominium’s boss Piotr Dziezek will become chief executive.
DP Poland raised £3.5m at 8p a share, while 21.8 million of the consideration shares were sold at the same price. There will be £2.4m left after the costs of the transaction. This will finance the integration and provide working capital.
DP Poland is focused on takeaway, while Dominium is primarily an eat-in restaurant and the sites are mainly located in tourist destinations. There may be some rationalisation of overlapping sites.
Cost savings will be achieved. The group will select the best suppliers and gain volume discounts, while DP Poland will make dough for Dominium. The commissaries can cope with 150 sites. The delivery operations will be integrated. There could be annualised savings of £2.73m.
In 2019, Dominium generated EBITDA of £3.2m. Like-for-like sales grew by 14% in the first two months of 2020. DP Poland generated revenues of £7m in the first six months of 2020 and made an EBITDA loss. Both businesses made a pre-tax loss in the first half.
Malaccan Holdings, which is selling Dominium, has provided warranties for potential VAT payments and other matters of up to £3.5m. Malaccan and related parties will own 45% of DP Poland.
The admission document for the enlarged group should be sent on 21 December and the company readmitted to AIM on 8 January.