Diversified Royalty Acquires Mr. Lube Franchisor for $235M

Diversified Royalty Corp. is set to significantly expand its stake in the Canadian automotive aftermarket by acquiring the franchisor operations of Mr. Lube + Tires for $235 million. This strategic move deepens the company's economic exposure to its largest and most successful royalty partner, aiming to capitalize on the brand's established market presence and consistent growth trajectory.

The transaction, anticipated to finalize by the second quarter of 2026, subject to regulatory approvals, will integrate the core franchise business of Mr. Lube + Tires into Diversified Royalty's portfolio. This acquisition is particularly noteworthy given Mr. Lube + Tires' impressive financial performance, having averaged 7.2% same-store sales growth and a 14.7% compound annual growth rate in adjusted EBITDA over the past decade. The company, a fixture in Canadian vehicle maintenance since its 1976 inception, now boasts 187 locations nationwide, with the vast majority operated by franchisees.

Diversified Royalty plans a multi-pronged financing approach for the acquisition. Funds will be sourced from existing cash reserves, its acquisition facility, new senior debt, and a significant component of rolled equity from Mr. Lube + Tires' management and stakeholders. Specifically, Diversified Royalty will utilize approximately $34 million in cash and $41.1 million from its undrawn acquisition facility, complemented by $212.5 million from a newly established senior credit facility. Furthermore, Diversified Royalty will issue roughly 3.4 million shares at $3.98 each to certain Mr. Lube + Tires equity holders, while the existing management team will reinvest $20.6 million, retaining approximately a 4% ownership in the acquiring entity.

This deal underscores the robust health of the Canadian automotive services sector, a segment benefiting from an aging vehicle fleet and increasing consumer demand for convenient, specialized maintenance. Mr. Lube + Tires, recognized for its no-appointment-needed model and expansion into tire services, serves over 2 million customers annually, generating system-wide sales exceeding $500 million. Its consistent recognition as one of Canada’s Best Managed Companies for thirteen consecutive years and its accolades for corporate culture highlight its operational excellence.

The acquisition is projected to enhance Diversified Royalty's financial performance considerably. The company estimates the combined entity will generate approximately $58.7 million in adjusted EBITDA within the first twelve months post-closing. This is expected to boost Diversified Royalty's distributable cash per share from $0.3128 to $0.3478 on a pro-forma basis. Despite this growth, the company's board has opted to maintain the current annualized dividend of $0.285 per share, prioritizing financial flexibility for deleveraging post-acquisition.

Looking ahead, Mr. Lube + Tires demonstrates a strong commitment to expansion, having opened 16 new locations in 2025 and planning for 18 new openings in 2026, with an additional 16 slated for 2027. The continued leadership of Pamela Lee as President and CEO of Mr. Lube + Tires, who is also expected to join the board of the acquiring entity, signals a commitment to continuity and sustained growth. PricewaterhouseCoopers Corporate Finance Inc. served as the exclusive financial advisor to Mr. Lube + Tires and its equity holders throughout this significant transaction.