Diversified Royalty Corp. Acquires Cheba Hut, Expanding U.S. Portfolio and Revenue Streams
- Diversified Royalty Corp. acquires Cheba Hut's trademarks for US$36 million, expanding its royalty stream portfolio to nine.
- The acquisition includes a 50-year licensing agreement, generating an initial annual royalty payment of US$4 million.
- CEO Sean Morrison highlights the acquisition's potential to contribute 7% to pro-forma adjusted revenue and support brand growth.
Diversified Royalty Corp Expands Portfolio with Cheba Hut Acquisition
Diversified Royalty Corp. (TSX: DIV and DIV.DB.A) makes a significant move by acquiring the trademarks and intellectual property of Cheba Hut Franchising, Inc. for US$36 million in cash. This acquisition, announced on June 17, 2025, marks the company's second foray into the U.S. market and enhances its royalty stream portfolio to nine. The financing for this strategic acquisition comes from a mix of sources, including an amended acquisition facility and new credit facilities, demonstrating the company's proactive approach to funding growth.
By licensing the Cheba Rights back to Cheba Hut for an impressive 50 years, Diversified Royalty Corp. establishes a long-term revenue stream with an initial annual royalty payment set at US$4 million. This figure will adjust annually to account for inflation or a minimum increase, ensuring that the revenue remains robust over time. The acquisition is expected to bolster the company's tax pools by approximately CAD$51 million, adding to a total of CAD$424 million that can be depreciated for tax purposes. This financial maneuvering not only strengthens Diversified Royalty Corp.'s financial position but also aligns with its strategic goal of diversifying its royalty sources.
CEO Sean Morrison emphasizes the significance of this acquisition, noting that it will contribute approximately 7% to the company's pro-forma adjusted revenue. The partnership with Cheba Hut is expected to foster brand integrity and growth, as highlighted by Cheba Hut's founder, Scott Jennings, who expresses confidence in the collaboration. With Cheba Hut's current operations of 77 franchised locations and system sales projected to grow from US$149 million in 2024 to over US$187 million in 2025, the acquisition positions Diversified Royalty Corp. favorably in the expanding U.S. market.
In addition to enhancing its portfolio, Diversified Royalty Corp.'s acquisition of Cheba Hut demonstrates a commitment to strategic growth through diversification. The company's proactive financing approach and long-term royalty structure reflect a robust strategy to capitalize on the growing franchise landscape in the U.S. market.
This acquisition not only strengthens Diversified Royalty Corp.'s revenue streams but also solidifies its role in supporting the growth of established brands like Cheba Hut. With a focus on maintaining brand integrity and fostering growth, the partnership promises a mutually beneficial future for both entities.