Revenue Royalties Income Fund

Proposed combination of A&W Food Services and A&W Revenue Royalties Income Fund

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The A&W Root Bear

A New and Better Structure for the A&W Business

A&W Food Services of Canada Inc. and A&W Revenue Royalties Income Fund (“the Fund”) today announced that they have agreed to a strategic combination (the “Transaction”) that will create a leading publicly traded, growth focused, quick-service restaurant (QSR) franchisor (“A&W Food Services NewCo”) with 1,062 locations coast-to-coast across Canada, a beloved brand, a proven track record of best-in-class sales, and exciting potential.

The Transaction will combine A&W Food Services with the Fund to create a new company with a simplified traditional corporate structure that is directly comparable to other global publicly listed QSR franchisors, providing numerous benefits to unitholders as compared to the current structure.

Following completion of the Transaction, A&W Food Service NewCo will continue to be led by Susan Senecal, the current President and Chief Executive Officer of both A&W Food Services and the Fund, and her proven management team, and will be governed by an experienced and majority independent Board of Directors. A&W Food Services NewCo expects to initially pay a quarterly dividend at the same annualized rate as current distributions of the Fund (currently equal to $1.92 per unit).

The Transaction is expected to close in October and is subject to customary closing conditions, including court approval, the approval of the Fund unitholders, approval of the Toronto Stock Exchange and regulatory approval under the Competition Act (Canada). See “Additional Information” below.

Benefits to Unitholders: Full Participation in A&W’s Growth and Valuation Upside while Maintaining Existing Distribution Level in the Form of Dividends.

This combination provides an excellent opportunity for unitholders to realize compelling value, preserves an ongoing income stream through an attractive quarterly dividend and gives new or continuing shareholders the ability to participate in the full range of value catalysts in the A&W business.

Transaction benefits include:

  • Full participation in the growth and performance of the entire A&W business – including upside from new restaurant openings, margin expansion due to operating leverage and economies of scale, new concepts like Pret A Manger, and the retail root beer business, amongst other value-enhancing opportunities, all while being expected to maintain current distributions in the form of an attractive quarterly dividend.
  • Attractive share price upside potential – based on A&W Food Services' track record of strong operating performance relative to its global peer set, and the significant value creation potential implied by current public trading valuations of global QSR peers.
  • Potential for enhanced liquidity and profile – with a simplified corporate structure and growth mandate, A&W Food Services NewCo has the potential for greater liquidity and is more likely to attract institutional investor interest and research analyst coverage.
  • Greater financial flexibility – A&W Food Services NewCo will have greater financial flexibility to invest in growth opportunities and strategic initiatives, while allowing for balance sheet optimization to typical leverage levels observed in publicly-traded QSR peers.

Additional Information

Further details regarding the Transaction can be found in the Fund’s press release dated July 22, 2024, a copy of which has been made available below. In addition, two presentations containing important information regarding the Transaction have been made available below.

Transaction News Release Transaction Presentation Management Presentation

For more information, contact:

A&W Revenue Royalties Income Fund
Email: investorrelations@aw.ca

Forward-looking information

Certain statements on this webpage contain forward-looking information within the meaning of applicable securities laws in Canada. The forward-looking information on this webpage includes, but is not limited to: expectations relating to the timing and completion of the Transaction; the listing of the common shares of A&W Food Services NewCo on the Toronto Stock Exchange; the anticipated benefits of the Transaction, including, without limitation, expectations with respect to A&W Food Services NewCo’s potential for growth and capital appreciation, share price upside, value creation and enhanced liquidity and profile in the capital markets; the strategic direction and growth opportunities of A&W Food Services NewCo including opportunities and commitments to add new A&W restaurants (units) in Canada and the continued growth of the burger segment of the Canadian QSR market; expectations that distributions will be maintained in the form of dividends by A&W Food Services NewCo and the annualized rate of those future dividends; and expectations relating to the future operating and financial performance of A&W Food Services NewCo, including its ability to expand margins, grow sales, guest counts and earnings and generate free cash flow. The words “expects”, “plans”, “will”, and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words.

This forward-looking information is based on a number of assumptions that, while considered reasonable as of the date such statements are made, are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking information. Such assumptions include, but are not limited to: the Fund’s ability to obtain unitholder approval and consummate the Transaction on the terms and conditions and timing currently contemplated; that A&W Food Services NewCo will be successful in executing its business strategies and pursuing its growth opportunities, and that, coupled with its simplified corporate structure and growth mandate, will attract significantly more institutional investor interest and research coverage; there are no material changes in competition; the continued availability of experienced management and other key personnel and hourly employees; and that there are no material changes in the QSR burger market, including as a result of changes in consumer taste or health concerns, a disease outbreak or economic conditions (including inflation, interest rates and unemployment levels).

Inherent in forward-looking information are risks and uncertainties beyond management’s or the Fund’s or A&W Food Services’ ability to predict or control that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. The forward-looking information on this webpage is subject to, among others, the risks related to A&W Food Services’ business (including those generally impacting the QSR industry) identified in the Fund’s Annual Information Form dated February 27, 2024 (the “AIF”) which is available under the Fund’s profile on SEDAR+ at www.sedarplus.ca. However, those risks are expressed in the AIF from the perspective of the Fund and, consequently, their impact on the royalty and A&W Food Services ability to pay such royalties to the Fund. Following completion of the Transaction, A&W Food Services NewCo will continue on as A&W Food Services of Canada Inc. and, as a result, the shareholders of A&W Food Services NewCo will be directly exposed to each of the risks related to A&W Food Services’ business. Those risks could materially and adversely impact the results, financial condition, performance or prospects of A&W Food Services’ business and, consequently, cause the market price or value of the shares of A&W Food Services NewCo to decline or reduce the amount of any dividend paid on those shares.

This forward-looking information is also subject to specific risks and uncertainties relating to the Transaction and the shares of A&W Food Services NewCo and include the following material risks:

  • the completion of the Transaction may not occur on the anticipated terms and timing or at all;
  • failure to complete the Transaction could negatively impact market price of the units of the Fund;
  • the Formal Valuation and Fairness Opinions will not reflect changes in circumstances that may have occurred or that may occur between the date of the Combination Agreement and the completion of the Transaction;
  • there could be unknown or undisclosed risks or liabilities of Food Services, a private company, that could materially and adversely affect A&W Food Services’ business, financial condition or results of operations and for which the Fund would not be permitted to terminate the Combination Agreement and would not be indemnified by the existing shareholders of A&W Food Services’ following closing;
  • tax consequences of the Transaction may differ from anticipated treatment;
  • the anticipated benefits of the Transaction, including the potential for improved liquidity, increased institutional ownership and research coverage, and a market valuation that is more comparable to other publicly traded QSRs, may not occur on a timely basis or at all;
  • market conditions may cause the market price of the shares of A&W Food Services NewCo to fluctuate substantially;
  • an active, liquid and orderly trading market for the shares of A&W Food Services NewCo may not develop;
  • the change in the investment profile from income to total return following completion of the Transaction may put selling pressure on the shares of A&W Food Services NewCo that adversely affects their market price and liquidity;
  • payment of future cash dividends on the shares of A&W Food Services NewCo will be subject to the discretion of the Board of Directors of A&W Food Services NewCo and may vary from time to time or be suspended entirely depending on, among other things, the performance of A&W Food Services NewCo and, as a result, the rate and amount of any such dividend is not guaranteed;
  • the significant ownership of the shares of A&W Food Services NewCo by the existing shareholders of A&W Food Services’ may adversely affect the market price and liquidity of the shares of A&W Food Services NewCo due to their ability to exercise substantial influence over A&W Food Services NewCo and a relatively smaller public float of the combined company shares;
  • actual or expected sales of a significant number of the shares of A&W Food Services NewCo by the existing shareholders of A&W Food Services could cause their market price to decline; and
  • covenants contained in A&W Food Services NewCo’s credit agreement will affect and, in some cases, significantly limit the manner in which the combined company will operate its business, including with respect to the timing and amount of dividends.

The forward-looking information contained on this webpage are based on expectations as of July 22, 2024 and are subject to change after such date. All forward-looking information on this webpage is qualified in its entirety by this cautionary statement and, except as required by law, the Fund and A&W Food Services undertake no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after such date.