​From Noodles to Numbers: Apollo's £701m Wagamama Takeover!

Apollo, the private equity behemoth, has agreed to acquire The Restaurant Group (TRG) at 65p per share, a company owning approximately 380 outlets across Britain.

Triplecaña, CC BY-SA 4.0, via Wikimedia Commons

In a deal exceeding £700 million, The Restaurant Group, which owns Wagamama, has agreed to a takeover by Apollo. Amid concerns of consumer expenditure and broader economic instability, TRG has expressed support for the "certain value" the deal brings.

With the offer being a 34% premium on TRG's share price from the market closing on Wednesday, Apollo's purchase price puts the valuation of TRG's shares at around £506 million. When considering debts, the total valuation stands at £701 million.

Upon hearing of the takeover, TRG's share prices leapt 37% to 66p.

TRG, proprietor of the renowned Wagamama chain of Asian noodle eateries, also boasts ownership of pubs like Brunning & Price, along with food stalls at airports and other travel venues, totalling around 380 locations across the UK.

This acquisition follows closely on the heels of TRG's recent decision to divest its loss-incurring restaurant chains, Frankie & Benny's and Chiquito, to Big Table Group – the entity behind Bella Italia, Las Iguanas, and Banana Tree. Big Table will be shelling out a symbolic £1 for 75 of these dining establishments and will be granted a "contribution" from TRG amounting to £7.5 million. The completion of this sale is anticipated for October 30.

Commenting on the developments, TRG's chairman, Ken Hanna, stated: "The TRG board and its management have meticulously considered the strategic alternatives for the group, culminating in the announcement of the leisure business's intended sale. While the TRG board remains optimistic about the plan, it also acknowledges the premium and the surety of Apollo's proposition in the context of a turbulent macro-economic scenario."

Mtaylor848, CC BY-SA 4.0, via Wikimedia Commons

Apollo mentioned its longstanding interest in TRG. Apollo's private equity business partner, Alex van Hoek, noted: "While TRG's enterprise has consistently weathered macroeconomic fluctuations, the impending landscape of soaring interest rates and inflationary strains necessitates the backing of enduring private investment to realise its aspirations."

Recent half-yearly figures revealed that TRG transitioned to a pre-tax profit of £2.3 million in the six months leading up to July. This is in contrast to a loss of £28.5 million in the corresponding period the previous year. The escalating costs have burdened TRG, much like the broader hospitality industry, though TRG anticipates a reduction in these expenses. Notably, Wagamama experienced an 11% surge in like-for-like sales for dine-in patrons during the first half, albeit a decline in takeaways by 8%.

Shore Capital has expressed reservations about the bid for TRG, believing it to be undervalued. "The proposed amount does not truly reflect the asset's quality, its freehold assets (around £160 million), or its progress on strategic targets," the broker commented. Shore Capital projections place Ebitda at roughly £130 million and estimate a value of about 100-120p per share in a three-year timeframe. Analyst Greg Johnson remarked: "A starting point of 80p per share would align more with the long-term potential, or perhaps we're nostalgic for past valuations of UK stocks."