Eat it up: Chiquito owner’s share price sinks as it confirms £559m Wagamama takeover
Frankie & Benny's owner The Restaurant Group (TRG) saw its shares crash by almost 18 per cent in early trading today, as it launched a takeover approach for Wagamama.
TRG has agreed to buy the holding company behind the pan-Asian restaurant chain, Mabel Topco, for a cash sum of £357m, saying it represents an enterprise value of £559m, after news of the proposed sale first broke yesterday.
The deal is expected to spur Wagamama’s UK expansion by converting TRG sites into Wagamama restaurants, bolster international growth and explore delivery opportunities.
TRG is eyeing £22m in cost synergies from the acquisition, which it will fund with a mix of cash, new debt and a rights issue.
Paying £207m in cash for Wagamama's issued share capital, TRG will also pay £150m back to Wagamama's shareholders, expecting the cash payment to complete in mid-December.
TRG will also take on £202m of net debt in Wagamama.
But while an analyst welcomed consolidation in the restaurant sector, he warned the deal's price would prove controversial, and TRG's shares sank from 300p to 244.2p in early trading, as it also revealed that its own chains' like-for-like sales were down 2.2 per cent over the last 42 weeks.
Paul Hickman, analyst at Edison Investment Research, warned that the cash consideration is equivalent to two-thirds of TRG's market cap.
"This is a big strategic move at a time when Restaurant Group is still in the process of sorting out its heritage estate," Hickman said.
"Like-for-like sales decline of 2.2 per cent for the last 42 weeks means that the core operation is losing significant profit contribution.
"The rationale for the acquisition rests on the fact that Restaurant Group’s leisure operations, making up about half its earnings before interest, tax, depreciation and amortisation (Ebitda), remain exposed to retail headwinds, and that it therefore sees potential in scaling up and aligning with consumer trends via this acquisition.
"Meanwhile the acquisition multiple of 8.7 times Ebitda including site synergies is not cheap. We therefore expect that the move will be controversial.”
Total sales were down 0.5 per cent compared to the same period in 2017, with like-for-like sales down 2.2 per cent, TRG said.
The group was forced to close a string of venues after issuing multiple profit warnings in 2016.
However, since its half-year results in August it said like-for-like sales have grown 1.4 per cent in the 14 weeks since the end of the World Cup.
TRG chief executive Andy McCue said:
This transaction is an exciting and transformative opportunity to create a business which can pursue a truly multi-pronged growth strategy and create substantial value for our shareholders.
Wagamama is a fantastic brand, with a market leading pan-Asian proposition, which has consistently outperformed the casual dining market in recent years. Central to this success has been a cohesive culture and clear brand values which are focused on making the right choices for customers.
The transaction not only gives us a great brand but also creates a business with a multi-pronged growth strategy which will enhance earnings with continued selective UK rollout, accelerated via conversions of some TRG sites; by further leveraging the brand in Concessions both in the UK and internationally; by maximising the opportunities presented by the rapidly growing delivery sector; and by optimising the potential within international markets.