MTY to buy Lee Equity-backed Papa Murphy’s in $253 mln deal

MTY Food Group Inc (TSX: MTY) has agreed to acquire Papa Murphy’s Holdings Inc (Nasdaq: FRSH), a Vancouver, Washington-based franchisor and operator of the Take ‘n’ Bake pizza brand.

MTY agreed to pay US$6.45 per share, representing a total value of about US$190 million, or $253.2 million, including debt. The deal is expected to close in Q2 2019.

MTY, a Montréal-based franchisor and operator of quick-service and casual dining restaurants, said the acquisition will support its U.S. market expansion goals.

Papa Murphy’s was taken public in 2014 by Lee Equity Partners. The U.S. private equity firm continues to hold a stake in the business.

PRESS RELEASE

MTY Food Group Inc. and Papa Murphy’s Holdings, Inc. Announce Definitive Merger Agreement

MONTREAL, April 11, 2019 (GLOBE NEWSWIRE) — MTY Food Group Inc. (“MTY”) (TSX:MTY) and Papa Murphy’s Holdings, Inc. (“Papa Murphy’s”) (NASDAQ:FRSH) today announced they have entered into a definitive merger agreement (the “Merger Agreement”) under which MTY would acquire all of the issued and outstanding shares of common stock of Papa Murphy’s for cash consideration of US$6.45 per share, representing total transaction value of approximately US$190.0 million (C$253.2 million) (the “Transaction”), including Papa Murphy’s net debt outstanding. The purchase price per share of Papa Murphy’s common stock implies a premium of 31.9% to the Papa Murphy’s closing price on April 10, 2019 and 46.3% to the unaffected Papa Murphy’s closing price on November 7, 2018 prior to the announcement by Papa Murphy’s that it was conducting a process to explore and evaluate strategic alternatives to maximize shareholder value and had engaged a financial advisor to assist with the review. The terms and conditions of the Merger Agreement were unanimously approved by the boards of directors of both companies. The Transaction is subject to customary closing conditions including receipt of applicable regulatory approvals.

MTY is a leading franchisor in the North American restaurant industry. MTY’s multi-concept model allows MTY to position itself across a broad range of demographic, economic and geographic sectors. As at February 28, 2019, its network had 5,941 locations in operation, mostly all franchised, including over 500 locations operating in 39 countries outside North America.

Papa Murphy’s is a franchisor and operator of the largest Take ‘n’ Bake pizza brand and the 5th largest pizza chain in the United States, selling fresh, hand-crafted pizzas ready for customers to bake at home. In addition to scratch-made pizzas, Papa Murphy’s offers a growing menu of grab ‘n’ go items, including salads, sides and desserts. Papa Murphy’s was founded in 1981 and operated 1,331 franchised and 106 corporate-owned stores in 37 U.S. states, Canada and the United Arab Emirates as of December 31, 2018.

Eric Lefebvre, Chief Executive Officer of MTY said, “This is an important transaction for MTY as we add a brand with a differentiated position in pizza to our existing U.S. portfolio. We are thrilled about the prospect of welcoming the Papa Murphy’s brand, its franchise partners and employees, to the MTY family. Papa Murphy’s is a unique concept with over a 35 year history of providing a superior quality product made with fresh ingredients. We believe the pizza segment is highly attractive due to its size, fragmented nature and growth potential. The Papa Murphy’s brand is well loved by its loyal customers and is supported by a strong network of franchise partners. We expect the combination of these two companies and the expertise it brings to produce tremendous opportunities for MTY’s U.S. expansion objectives.”

“The board of directors and our advisors have thoroughly evaluated all options available to us and are confident that this agreement provides immediate value to our stockholders at a premium over our current share price. Merging our unique, differentiated brand with a global leader in franchised restaurant concepts will accelerate on-going efforts to enhance our convenience and relevance and maintain our position as the number one Take ‘n’ Bake pizza chain in the United States,” said Jean Birch, Chairperson of the board of directors of Papa Murphy’s.

Transaction Highlights

Strengthens MTY’s leading portfolio of brands through the acquisition of the 5th largest pizza chain in the U.S.

° Leading Take ‘n’ Bake pizza concept serving award-winning, superior quality products made with fresh ingredients.

° Increasing MTY’s exposure to the robust and growing U.S. pizza market.

° MTY’s combined network to have approximately 7,378 stores globally after completion of the Transaction with future runway for growth.

Complements MTY’s U.S. operations and reduces seasonality of its results.

° Papa Murphy’s had US$809 million System-wide Sales for the twelve-month period ended December 31, 2018.

° Papa Murphy’s generated US$22.3 million in Adjusted EBITDA for the twelve-month period ended December 31, 2018.

Strategically timed as Papa Murphy’s system is building momentum after implementation of refreshed corporate strategy and refocus on the brand.

° MTY anticipates working with Papa Murphy’s to make capital investments focused on growing top line sales and increasing franchise partner profitability.

MTY welcomes a seasoned management team and looks forward to building on Papa Murphy’s employees’ expertise and maintaining the current support center in Vancouver, WA.

Expected to be immediately accretive to MTY’s EBITDA and cash flow per share.

MTY remains committed to pursuing its acquisition strategy. Pro Forma MTY is expected to continue to generate significant cash flow allowing for deleveraging and providing liquidity to pursue future M&A opportunities.
Transaction Details

Under the terms of the Merger Agreement, a subsidiary of MTY will commence a tender offer to purchase all of the outstanding shares of Papa Murphy’s common stock for US$6.45 per share in cash. The closing of the tender offer is subject to customary conditions, including antitrust clearance and the tender of a majority of the outstanding shares of Papa Murphy’s common stock. Following successful completion of the tender offer, MTY would acquire all remaining shares not tendered in the offer through a merger at the same price as in the tender offer.

The Transaction is not subject to any financing condition and consideration will be 100% funded in cash. MTY will use its cash on hand and its existing credit facility to fund the cash consideration and to repay Papa Murphy’s net debt outstanding as of the close of the Transaction, which today is approximately US$77.4 million.

Pursuant to the terms of the Merger Agreement, Papa Murphy’s has agreed that it will not solicit or initiate discussions regarding any other business combination or sale of material assets. MTY has the right to match any superior proposals. The Transaction provides for a termination fee of approximately US$5.7 million payable by Papa Murphy’s to MTY in certain circumstances if the Transaction is not completed.

The Transaction is expected to close in the second calendar quarter of 2019. There is no assurance the Transaction will be completed as described above or at all, or that the anticipated closing date will materialize. Following the close of the transaction, Papa Murphy’s will be a wholly-owned subsidiary of MTY and will continue to be operated as an independent brand.

Transaction Approvals

The Transaction has been unanimously approved by the board of directors of MTY and has been unanimously approved by the board of directors of Papa Murphy’s. Each director and executive officer of Papa Murphy’s, cumulatively having beneficial ownership and control over 2.2% of Papa Murphy’s shares outstanding, have signed support agreements to tender all of their shares into the offer. Moreover, certain additional Papa Murphy’s shareholders having beneficial ownership and control over 49.8% of Papa Murphy’s shares outstanding have also signed such agreement to tender all of their shares into the offer. In total, holders of approximately 52.1% of Papa Murphy’s shares have agreed to tender their shares into the offer, subject to potential adjustments in certain circumstances provided in the support agreement. The consummation of the Transaction is conditioned upon the tender of a majority of Papa Murphy’s issued and outstanding shares of common stock.

Financial and Legal Advisors

National Bank Financial Inc. is acting as exclusive financial advisor to MTY and Fasken Martineau DuMoulin LLP and Morrison & Foerster LLP are acting as its legal advisors. North Point Advisors LLC is acting as exclusive financial advisor to Papa Murphy’s and Perkins Coie LLP is acting as its legal advisor.

Conference Call

MTY will be available for questions on the Transaction during its quarterly earnings conference call today April 11, 2019 at 8:30 AM EDT and will provide supplemental slides on its corporate website at www.mtygroup.com. Participants are invited to access the conference call by dialing 647-788-4922 (For all Toronto and overseas participants) and 1-877-223-4471 (For all other North American participants).

If you are unable to call in at this time, you may access a recording of the meeting by calling 1-800-585-8367 and entering the passcode 1483329 on your phone. This recording will be available on April 11, 2019 as of 11:30 AM until 11:59 PM on May 10, 2019.

About MTY Food Group

MTY Group franchises and operates quick-service and casual dining restaurants under approximately 75 different banners in Canada, the United States and internationally. Based in Montreal, MTY is a family whose heart beats to the rhythm of its brands, the very soul of its multibranded strategy. For over 35 years, it has been increasing its presence by delivering new concepts in quick-service restaurants and making acquisitions and strategic alliances that have allowed it to reach new heights year after year. By combining new trends with operational know-how, the brands forming the MTY Group now touch the lives of millions of people every year. With approximately 6,000 locations, the many flavours of the MTY Group have the key to responding to the different tastes and needs of consumers today and tomorrow.

For more information about MTY or the Transaction, please contact Pierre Boucher or Jennifer McCaughey, MaisonBrison, at 1-514-731-0000 or by email at pierre@maisonbrison.com or jennifer@maisonbrison.com or visit our website, https://mtygroup.com or SEDAR’s website at www.sedar.com under the Company’s name.

About Papa Murphy’s Holdings

Papa Murphy’s Holdings, Inc. is a franchisor and operator of the largest Take ‘n’ Bake pizza brand in the United States, selling hand-crafted, fresh pizzas for customers to bake at home. The Company was founded in 1981 and currently operates over 1,400 franchised and corporate-owned stores in 37 U.S. states, Canada, and the United Arab Emirates. Papa Murphy’s core purpose is to help anyone with an oven and 15 minutes serve a scratch-made meal. In addition to fresh pizzas, the Company offers hand-crafted salads, sides and desserts to complete the meal. Order online today at www.papamurphys.com for easy pick up everywhere, and find Papa Murphy’s on your favorite delivery apps in select markets.

For more information about Papa Murphy’s or the Transaction, please contact Maurice Hines, Investor Relations at 1-360-449-4008 or by email at maurice.hines@papamurphys.com or visit our website, http://investors.papamurphys.com or the SEC website at and www.sec.gov under the Papa Murphy’s name.