​Hostmore's Acquisition Plans for TGI Fridays Derailed by Legal Issues

Hostmore has withdrawn from its planned acquisition of the American-themed dining chain TGI Fridays. The decision comes after legal complications emerged, which impacted the deal's viability.

Harrison Keely, CC BY 4.0, via Wikimedia Commons

Earlier this year, in April, Hostmore had initially agreed to a £177 million all-share acquisition of TGI Fridays. The terms of the sale valued the restaurant chain at approximately 5.4 times its FY23 underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA), a valuation Hostmore described as "highly attractive."

However, the deal faced a major setback when TGI Fridays lost control of TGIF Funding, the entity responsible for holding the legal rights to the franchise agreement royalties. This development led Hostmore to express concerns about the potential impact on future revenue. In a recent update, Hostmore explained that the "predictable and highly cash-generative royalty stream" had been the key motivator behind their pursuit of the acquisition. Without this revenue source, the group concluded that the acquisition would no longer be viable.

Hostmore's update confirmed that the acquisition was no longer actively pursued, although it hinted at the possibility of revisiting discussions if circumstances change.

Before this decision, Hostmore had indicated plans to shift TGI Fridays to a fully franchised model, contingent upon the acquisition's success. The reverse takeover process had reportedly reached an "advanced stage," with several formal bids submitted. Despite the withdrawal from the acquisition, the group has announced that its corporate store sales remain on track, expected to be finalised later this month.

Mike Mozart from Funny YouTube, USA, CC BY 2.0, via Wikimedia Commons

Hostmore's financial performance, however, continues to face challenges. Year-to-date like-for-like sales have seen a 12% decline compared to the same period in 2023. Hostmore, which operates 87 TGI Fridays outlets across the UK as its largest franchisee, is listed on the London Stock Exchange.