The Restaurant Group plc (“TRG”), is pleased to announce that it has conditionally agreed to purchase the entire issued share capital of Mabel Topco Limited (“Wagamama”), the holding company of a group that owns and operates the Wagamama restaurant business (the “Acquisition”) for a cash payment of £357 million1, representing an enterprise value of £559 million. This implies a multiple of 8.7x LTM August 2018 EBITDA including cost and site conversion synergies2.
Wagamama is a differentiated, high growth brand with clear structural advantages
· Wagamama is a differentiated, high growth pan-Asian proposition that has consistently and significantly outperformed its core UK market
· Wagamama is well aligned to key structural trends, addressing customer demand for speed of service, delivery and healthy options
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The combination of TRG and Wagamama (together, the “Enlarged Group”) creates a business with a compelling multi-pronged growth strategy, which will include:
· Acceleration of Wagamama’s UK roll-out with selected TRG site conversions
· Expansion of Wagamama’s UK Concessions presence leveraging TRG’s existing relationships
· Significant combined delivery opportunities via restaurants and delivery kitchens
· Piloting of pan-Asian cuisine ‘food-to-go’ offerings
· Exploring international growth options enabled by Wagamama’s established international presence
The Enlarged Group will be strongly growth-oriented and will benefit from a clear scale advantage, enabling the creation of significant shareholder value
· Together, the Enlarged Group is expected to derive circa 70% of Outlet EBITDA from high growth segments3
· The Acquisition is expected to result in estimated cost synergies and site conversions synergies of approximately £22 million
· The Acquisition is expected to be Earnings per Share (EPS) enhancing in the first full year following Completion and strongly accretive thereafter
· The Acquisition’s return on invested capital is expected to exceed the weighted average cost of capital in the third year following Completion
· Wagamama will be run as an autonomous division of the Enlarged Group. Emma Woods, currently Wagamama Chief Growth Officer, will become the Wagamama CEO, leading an experienced operational team with a cohesive people-focused culture
· Allan Leighton, the current Chairman of Wagamama, will join the TRG board at Completion as a Non-Executive Director
Funding of the Acquisition
· The Acquisition will be funded through a combination of cash, new debt and a rights issue
· A rights issue is to be undertaken to raise circa £315 million of gross proceeds (the “Rights Issue”), which has been fully underwritten on a standby basis by J.P. Morgan Securities plc (“JPM”) and is expected to be fully underwritten on launch by JPM and Numis Securities Limited (“Numis”)
· In addition to the proceeds of the Rights Issue, the Acquisition will be financed through drawing on a £220 million revolving credit facility (the “Debt Facility”) that has been underwritten for TRG by the Royal Bank of Canada as arranger and original lender and RBC Europe Limited as agent (together “RBC Capital Markets”)
· TRG will assume Net Debt of £202 million in Wagamama, which includes the £225 million Wagamama senior secured notes (the “Notes”), which are expected to remain outstanding immediately following Completion by virtue of the terms and conditions governing the Notes which, subject to certain conditions having been met, allow for a change in the beneficial ownership of the issuer without requiring an offer to be made to noteholders to repurchase the Notes
· Following Completion, the Enlarged Group intends to adopt a policy of paying a dividend covered two times by earnings before exceptional items, with this policy reflected in the final dividend that the Company declares for TRG FY 2018
· The Board believes that this funding structure and dividend policy will result in an appropriate balance between delivering shareholder returns, enabling the Enlarged Group to invest in further growth and enabling the Enlarged Group to achieve an appropriate deleveraging profile
· The size of the Acquisition means that it is classed as a Class 1 transaction under the Listing Rules of the Financial Conduct Authority (the “Listing Rules”). Accordingly, the Acquisition is conditional upon, among other matters, the approval of TRG shareholders at a general meeting of the Company proposed to be held in late November 2018 (the “General Meeting”)
· TRG expects to publish a combined circular and prospectus, including the notice of General Meeting (the “Combined Circular and Prospectus”) in early November 2018. Subject to satisfaction of the conditions to the Acquisition, Completion is expected to occur in mid-December 2018
· The Board intends unanimously to recommend in the Combined Circular and Prospectus that TRG shareholders vote in favour of the requisite shareholder resolutions for the reasons mentioned earlier (the “Resolutions”). The directors of TRG intend to vote in favour of the Resolutions in respect of their own beneficial holdings, which amount to approximately 0.11% of TRG’s total issued ordinary share capital as at the date of this announcement
1The cash payment is expected to consist of £207 million in respect of the consideration for the entire issued share capital of Wagamama, and £150 million in respect of a repayment of shareholder loans. The cash payment is based on an expected completion date of mid-December 2018 and is subject to closing adjustments.
2Based on Wagamama LTM Aug-18 Adj. EBITDA after pre-opening costs of £42.5 million, cost synergies of £15 million & site conversion synergies of £7 million. Wagamama LTM Aug-18 Adj. EBITDA has been derived from the audited annual financial statements of Mabel Mezzco Limited for the 53 weeks ended 29 April 2018 and the unaudited interim financial information of Mabel Mezzco Limited for the 16 week periods ended 19 August 2018 and 13 August 2017, each prepared in accordance with UK GAAP (FRS 102).
3High growth segments comprise Wagamama, TRG Pubs and TRG Concessions
TRG current trading update
After 42 weeks’ trade in 2018, total sales were 0.5% down on the comparable period in 2017 and like-for-like sales were 2.2% down. Since our half-year results announcement at the end of August, TRG has continued to make good progress, and like-for-like sales were up 1.4% in the 14 week period following the end of the World Cup.
Commenting on the Transaction, Andy McCue, TRG CEO 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.”
This summary should be read in conjunction with the full text of this announcement.
There will be an analysts’ briefing at 9:00 a.m. today at The etc. centre, 200 Aldersgate, St Paul’s, London, EC1A 4HD.
In conjunction with the analyst briefing, a live conference call and webcast facility will be available. If you would like to register, please contact Alistair de Kare-Silver at MHP Communications for details on 020 3128 8742 or email TRG@mhpc.com.
The presentation slides will be available to download from 8:45 am from the Company’s website