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Apollo to buy Wagamama owner in £506mn deal

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US private equity group Apollo Global Management has struck a deal to buy Wagamama owner The Restaurant Group for £506mn, following a lengthy campaign by activist investors for a shake-up of the dining operator.

Under the terms of the deal announced on Thursday, Apollo will pay 65p a share in cash for TRG, which represents a premium of around 34 per cent to the stock’s last closing price.

The take-private deal follows a rolling activist campaign at the casual dining group in which shareholders, including Hong Kong-based fund Oasis Management, have pushed for a shake-up or sale of TRG’s restaurant assets.

Apollo said it had received an “irrevocable undertaking” from Oasis, TRG’s biggest shareholder with 17.8 per cent of the stock, and New York-based Irenic Capital, another activist fund, to vote in favour of the deal. 

The two activist funds, which stand to make a large windfall from the deal having bought some of the stock under 40p, own nearly a fifth of TRG’s stock between them.

Analysts at Stifel said in a note that they “understand the top six shareholders have been wall crossed and recommend the offer”. The acquisition implies an enterprise value of £701mn for TRG, valuing the company at a multiple of around nine times adjusted earnings before interest, taxes, depreciation and amortisation.

Ken Hanna, TRG’s chair who last month announced he was leaving following pressure from activist investors, said the board was “cognisant of the premium and the certain value of the Apollo offer against the backdrop of a challenging macroeconomic environment” and planned to “unanimously recommend” the offer to shareholders.

Last month, TRG offloaded its Frankie and Benny’s and Chiquito chains to Cafe Rouge owner Big Table group, saying it would pay its rival £7.5mn to take the lossmaking businesses, along with around £50mn worth of lease liabilities, off its hands.

Along with Wagamama, TRG owns the Brunning & Price pub chain and an airport concessions business. The casual dining operator reported half-year revenues of £467.4mn and adjusted ebitda of £36.3mn in the six months to early July.

Alex van Hoek, a partner at Apollo, said TRG “has proven resilient through macroeconomic cycles, but the outlook is still one of high interest rates and inflationary pressures and the company now needs the support of patient private capital to achieve its ambitions”.

Apollo, which has around $617bn worth of assets under management, said it was “highly supportive” of TRG management’s current strategy to cut the company’s net debt to 1.5 times adjusted ebitda by the end of 2025 and to boost margins.

The deal marks the latest example of private equity’s continued interest in the hospitality and leisure sector. Last month, private equity group McWin announced a deal to buy a majority stake in high-end Italian restaurant Big Mamma Group. UK-based leisure operators Bourne Leisure, Boxpark and Punch Pubs have all sold to private equity in recent years.

Apollo has done deals in the restaurant and entertainment sector before but has largely focused on companies in North America. Among its past investments are the Chuck E. Cheese restaurant chain.

Apollo has recent history in taking a run at publicly traded UK companies, although it has had limited success in getting deals done.

Earlier this year, the firm decided not to pursue its offer for UK oil engineering company Wood Group despite a months-long pursuit that saw it make multiple offers. Apollo also held preliminary talks with Matt Moulding’s THG before saying it did not intend to make an offer for the business. 

The takeover deal for TRG, which is expected to complete in early 2024, will need 75 per cent shareholder approval to proceed.

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