- Diversified Royalty Corp (“DIV” or the “Company”) is engaged in the business of acquiring top-line royalties from well-managed, multi-location businesses and franchisors in North America (“Royalty Partners”) and intends to diversify into several industries.
- DIV is a TSX-listed public company (TSX-DIV).
- DIV is currently paying an annual dividend of $0.2225 per common share.
- As part of its strategy, DIV typically purchases the trademarks of the companies it negotiates royalty agreements with.
- DIV’s typical royalty structure allows its Royalty Partners the benefit of:
- maintaining full operational control of their business;
- participating meaningfully in the growth of their company; and
- tax deductibility of royalty payments.
- DIV’s strategy typically includes having a General Security Agreement over the Royalty Partners’ business to protect DIV’s interests.
- By making accretive acquisitions, DIV expects to increase its dividend over time as cash flow per share increases allow.
- On September 26th, 2014, DIV acquired its first royalty – a 6% top-line royalty from Franworks Franchise Corp. (“Franworks”).
- Franworks owns and operates three distinct restaurant brands: Original Joe’s, State & Main and Elephant & Castle.
- DIV closed a $34.5 million bought deal in November 2014.
- On June 19th, 2015, DIV acquired its second royalty – an initial annual royalty of $3.5 million from Sutton Group Realty Services Ltd. (“Sutton”).
- DIV closed a $115.0 million bought deal in August 2015.
- On August 19th, 2015, DIV acquired its third royalty – an initial annual royalty of $12.5 million from Mr. Lube Canada Limited Partnership (“Mr. Lube”).
- On November 27th, 2016, DIV sold the trademarks and rights related to the Franworks indirectly to Cara Operations Limited (“Cara”) for $90.0 million and cancellation of 8,992,187 common shares.
- On August 25, 2017, DIV acquired the trademarks of Air Miles in Canada with an initial annual royalty of $8.5 million.
Efficiency and scalability
- DIV receives royalties from its Royalty Partners and typically monitors their business with board observation rights.
- DIV has low overhead relative to its revenue base and expects to dividend substantially all of its available cash flow.
- DIV expects it can increase its revenue base while maintaining its current management structure.