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US private equity group Apollo Global Management has agreed a deal to buy Wagamama owner The Restaurant Group for £506m, following a long campaign by activist investors to restructure the restaurants operator.
Under the terms of the deal announced on Thursday, Apollo will pay 65 pence per share in cash for TRG, which represents a premium of approximately 34% to the stock’s last closing price.
The take-private deal follows an ongoing campaign by the casual dining group, in which shareholders including Hong Kong fund Oasis Management have been pushing for the reorganization or sale of TRG’s restaurant assets.
Apollo said it had received “irrevocable commitments” from Oasis, the largest shareholder with 17.8% of TRG shares, and New York-based Irenic Capital, another activist fund, to vote in favor of the deal.
The two activist funds, which together own nearly a fifth of TRG’s shares, bought some of the shares for less than 40p and are expected to receive a huge windfall from the deal.
Analysts at Stifel said in a note that they “understand that the top six shareholders have crossed the line and recommended the takeover bid.” The acquisition represents an enterprise value for TRG of £701m, valuing the company at approximately 9 times adjusted EBITDA.
TRG Chairman Ken Hanna, who announced his resignation last month amid pressure from activist investors, said the board “recognized the premium and some value in the Apollo tender offer against the backdrop of a challenging macroeconomic environment.” ” and plans to “unanimously recommend” the offer to shareholders.
TRG sold its Frankie and Benny’s and Chiquito chains to Cafe Rouge owner Big Table Group last month and said it would pay the rival £7.5m to shed the loss-making business and lease liabilities worth around £50m.
Together with Wagamama, TRG owns the Brunning & Price pub chain and airport concessions business. The casual dining player reported half-year revenue of £467.4m and adjusted EBITDA of £36.3m in the six months to early July.
Apollo partner Alex van Hoek said TRG “has proven resilient throughout macroeconomic cycles, but the outlook remains one of high interest rates and inflationary pressures, and the company now needs the support of patient private capital to realize its ambitions.”
Apollo, which manages about $617 billion in assets, said it is “highly supportive” of TRG management’s current strategy to reduce the company’s net debt to 1.5 times adjusted EBITDA by the end of 2025 and improve margins.
The deal marks the latest example of private equity firms’ continued interest in the hospitality and leisure industry. Last month, private equity group McWin announced it had acquired a majority stake in fine Italian restaurant Big Mamma Group. British leisure players Bourne Leisure, Boxpark and Punch Pubs have all been sold to private equity firms in recent years.
Apollo has previously done deals in the restaurant and entertainment space, but primarily with companies in North America. Its past investments include the Chuck E. Cheese restaurant chain.
Apollo has recently been involved in acquiring UK-listed companies but has had limited success in completing deals.
Earlier this year, the company decided not to pursue a takeover bid for British oil engineering firm Wood Group, despite making multiple offers during the months-long pursuit. Apollo also held preliminary talks with Matt Molding’s THG and then said it did not intend to make a takeover bid for the business.
TRG’s acquisition is expected to close in early 2024 and requires 75% shareholder approval to proceed.
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