Apollo Group Embraces the Flavors of Wagamama: Discover the Exciting Union with The Restaurant Group

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Sophisticated continentals like to criticize British dining, but some blame should be placed on The Restaurant Group (TRG) due to mixed customer reviews for its chains, including Garfunkel’s and Frankie & Benny’s. Garfunkel’s has already closed its doors, while TRG’s lossmaking division containing Frankie & Benny’s was recently sold.

Last Thursday, TRG found itself as the main topic of discussion. An offer from buyout fund Apollo has valued the group, including its debts, at £700 million. The deal includes TRG’s 80 or so owned pubs and lucrative airport concessions.

However, shareholders may not find this offer as appetizing as a warmed-up lasagne. Prior to the offer, TRG’s share price had plummeted by 80% over the past five years, coinciding with the company’s ownership of its top asset, Asian-style chain Wagamama, which was acquired in 2018 for £560 million.

Oasis, an activist fund, should be satisfied as it has been advocating for change over the past year, which has influenced the current situation. Shares were trading as low as 26p a year ago. The cash offer of 65p represents a 67% premium compared to the one-year average. Oasis has already agreed to hand over its 18% stake.

Longstanding shareholders will need to carefully analyze the details. The multiple of enterprise value to next year’s EBITDA is around 8, which may seem fair compared to peers like Loungers trading at 6 times. Bowling lane operators receive similar valuations, while pub chain Mitchells & Butlers has an 8 times multiple, although it owns 80% of its property.

Property is the real meat of the deal that Apollo is seeking. TRG has its own freehold property portfolio, valued at £160 million at the end of last year. Apollo may attempt to extract cash from this through a sale and leaseback transaction. If the property is seen as a source of cash, it would reduce the enterprise value of the deal in turn.

Viewing the deal in this way would lower the valuation multiple to around 6 times. This is inexpensive enough for TRG’s long-suffering shareholders to expect a higher price closer to 80p.