US private equity group Apollo Global Management seals a significant acquisition, taking control of The Restaurant Group, owners of Wagamama, for £506 million. This buyout comes after a prolonged campaign led by activist investors who aimed to reform the dining operator.
Under the terms of the agreement announced on Thursday, Apollo commits to purchasing TRG for 65p per share in cash, presenting a premium of approximately 34 per cent over the stock’s most recent closing price. The acquisition, effectively taking the company private, follows a rising activist movement at the casual dining group.
Shares of TRG experienced an impressive surge of over 37 percent during Thursday’s morning trading, underscoring the significance of the buyout. This strategic move by Apollo is marked by a substantial “irrevocable undertaking” from Oasis Management, TRG’s largest shareholder, and New York-based Irenic Capital, both of which are activist funds deeply committed to supporting the deal.
Oasis Management and Irenic Capital, two influential activist funds, played a pivotal role in orchestrating this takeover, having acquired a considerable portion of TRG’s stock when its value was below 40p. This maneuver not only signifies a significant potential financial gain for these investors but also reinforces their campaign for a change in the company’s direction.
Analysts at Stifel highlight that the top six shareholders appear to be on board with the acquisition. The deal’s terms imply an enterprise value of £701 million for TRG, valuing the company at approximately nine times its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Apollo’s strategic approach
Ken Hanna, TRG’s departing chair, emphasized that the board recognizes the premium and value offered by Apollo, especially in the face of a challenging macroeconomic environment. Consequently, they intend to unanimously recommend the offer to shareholders.
Apollo’s partner, Alex van Hoek, expressed confidence in TRG’s resilience through economic cycles but acknowledged the prevailing challenges of high-interest rates and inflationary pressures. He stressed the necessity of patient private capital to support the company’s ambitions.
Apollo, with approximately US $617 billion in assets under management, is highly supportive of TRG management’s ongoing strategy to reduce the company’s net debt to 1.5 times adjusted EBITDA by the end of 2025 and enhance its margins.
This acquisition is the latest example of private equity’s continued interest in the hospitality and leisure sector, aligning with Apollo’s strategic expansion. It signifies a calculated move into the UK market, although Apollo has previously focused on North American companies. As the takeover deal for TRG is expected to conclude in early 2024, it hinges on securing 75 percent shareholder approval.
In addition to operating Wagamama, a network of Asian noodle restaurants, The Restaurant Group also manages Brunning & Price pubs and food outlets located in airports, boasting a combined presence of approximately 380 establishments across the country. Notably, the company has recently divested its underperforming brands, Frankie & Benny’s and Chiquito.