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Apollo’s £506 mn Acquisition of The Restaurant Group (TRG)

By Ngoc Nguyen, William Hodgson, Joanne Zhu and Xunliang Huang (University of Melbourne) ; Erica Chan, Jonathan Liu, Hunter Pang and Lasheeka Ramesh (LSE)

Photo: Bruno Martins (Unsplash)


Overview of the deal

Acquirer: Apollo Global Management

Target: The Restaurant Group

Total Transaction Size: £506 mn

Closed date: 21/12/2023

Target advisors: Lazard, Centerview Partners, Citi (Financial), Slaughter and May (Legal)

Acquirer advisors: RBC Capital Markets (Financial), Kirkland & Ellis (Legal)

The US private equity firm Apollo Global Management has agreed to acquire The Restaurant Group (LSE:RTN), which operates over 400 outlets in the UK, in a private deal, announced on October 12, 2023. The all-cash transaction will reward each shareholder with 65 pence, placing TRG’s equity and enterprise value at £506 million and £701 million, respectively. The purchase price represents a 63% premium over the average of the past 12 months, and a 34% premium over the previous day’s close of 48 pence. The deal has been approved unanimously by the TRG Board of Directors and is expected to be completed by early 2024.

Apollo has stated TRG’s management strategy and proven resilience as key factors in its acquisition decision, with the conviction that the firm’s deep industry knowledge and successful track record of the fund’s investments in the hospitality sector will enable sustained growth of TRG’s footprint. The TRG Board echoes this in its stance that after considering multiple alternative scenarios, they believe the transaction ultimately represents the superior outcome for TRG shareholders.

“TRG's business 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,” —Alex van Hoek, Partner (Apollo)

Company Details (Acquirer - Apollo)

Apollo Global Management, Inc. is an American private equity firm. It provides investment management and invests in credit, private equity, and real assets. They hold 512.8 billion USD worth of assets under management.

Founded in 1990, headquartered in New York, United States

CEO: Marc Rowan

Number of employees: more than 4000.

Market Cap: $ 51.84 Billion USD as of 17/11/2023

EV: $ -91.24 Billion

LTM Revenue: $ 26.44 Billion as of 30/09/2023

LTM EBITDA: $ 1.307 Billion

LTM EV/Revenue: -3.45x

LTM EV/EBITDA: -21.12x

Recent Transactions: $5.2bn acquisition of Arconic (May 2023)

Company Details (Target - The Restaurant Group)

The Restaurant Group plc (TPG) operates over 400 restaurants and public houses across the United Kingdom, with a diverse portfolio of brands including Wagamama, Frankie & Benny’s and Barburrito. The Group also operates a Concessions business which trades principally at UK airports.

Founded in 1987, headquartered in London, United Kingdom

CEO: Andy Hornby

Number of employees: 16,000+

Market Cap: $625.25mn USD (as of 22/11/2023)

EV: $890.13mn (USD)

LTM Revenue: $1.18bn as of 02/07/2023

LTM EBITDA: $98.54mn

LTM EV/Revenue: 0.8x


Projections and Assumptions

Short-term consequences

The all-cash acquisition of The Restaurant Group (TRG) by Apollo adds a high-quality company in the dining sector to its diverse brand portfolio. Given Apollo’s previous success investments in the consumer, retail and hospitality sectors, TRG is an attractive target that complements Apollo’s experience in implementing operational improvements and strategic changes. Apollo supports TRG’s strategy to boost the Adjusted EBITDA margin by 100bps and cut Net Debt/Adjusted EBITDA to below 1.5x by the end of FY25. TRG’s recent struggles with falling margins and slow operational rebound following inflationary pressures and Covid-19 have been well advertised, having seen operational costs of its near 400 restaurants soar. Taking the firm private will enable greater access to capital and investment to spearhead recovery and growth, as well as protection from market fluctuations and pressures.

Apollo has announced plans to accelerate the openings for new Wagamama and pub sites under a dedicated expansion plan, with the aim to recapture lost market share and support year-on-year volume growth. In line with positive management, the share price has risen 49 per cent over the last 12 months. As a result, this has improved the TRG Group’s EV/EBITDA multiple back to the firm’s average pre-pandemic multiple and at a premium to UK-listed peers in the casual dining sector. Overall, Apollo is well-positioned to assist in the next phase of growth for Wagamama, and TRG’s diverse mix of other brands across the pubs and concessions spaces.

Long-term Upsides

In parallel with broader industry trends, the hospitality sector faced challenges post-pandemic, with companies such as TRG facing shrinking margins and slow recoveries. Despite these obstacles, TRG positions itself for a promising trajectory as a privately held entity through the takeover. This strategic move provides the group with enhanced access to capital, addressing investors’ ongoing concerns about the group’s debt payments. In addition, Apollo’s commitment to long-term investments in TRG aligns with the group’s strategic objectives. Such investments allow response to structural changes in the constantly evolving hospitality industry in the medium and long run.

Furthermore, Apollo proves itself to be the qualified acquirer of TRG. The private equity firm has investments and rich expertise in the consumer, retail and hospitality sectors, and it aims to further support the upcoming growth phases of TRG’s brands. Having closely monitored TRG’s performance over an extended period, Apollo expresses confidence in TRG’s inherent capabilities, strategic vision, and customer-centric approach. It recognises TRG as a high-quality, leading company in the casual dining market with an attractive portfolio of concepts and brands, and can potentially become the best talent in its industry. The private equity firm is not only supportive of TRG's existing management strategy, but also envisions a collaborative partnership aimed at generating additional value for TRG's stakeholders.

Risks and Uncertainties

In March 2023, the board announced their medium-term strategy for TRG to deliver adjusted EBITDA margin accretion (250 bps to 350 bps) and reduce net debt / adjusted EBIDTA below 1.5x by FY25. In accordance with the plan, the board have proposed divestment of the leisure arm expecting a c.£50m reduction in IFRS-16 lease liabilities to The Big Table Group, paying £7.5mm for BTG to take over Frankie & Benny’s and Chiquito Brands; loss-leaders for the portfolio. Wagamama and their portfolio of pubs have reported strong YoY revenue and market share growth, however, persistent inflation and rising cost of living may reduce consumer spending and inhibit realization of expected growth, resulting in Apollo potentially overpaying in the deal.

As per the Companies Act 2006, 75% of shareholders (measured by value of the Scheme Shares) must vote in favour for both the scheme at court and the special resolution implementing the scheme at the General Meeting. With a recommendation from the board in favour of the deal and activist investors Irenic Capital and Oasis Management (collectively owning ~20% stake in TRG) indicating they’d vote in favour of the deal (as a result of persistent distrust in management), approval from shareholders may not pose a significant concern for approval of the deal. Additionally, the deal must be sanctioned by the court with the scheme implemented no longer than the Long Stop Date (11:59 GMT 13/05/2024).

With that said, Russell Pointon of the Edison Group indicated that there could be some contention with the 'The fact the share price has moved to a premium to the offer price, indicate[-ing] the market thinks a high offer will be required'.

"The TRG board continues to have confidence in the plan, but is cognisant of the premium and the certain value of the Apollo offer against the backdrop of a challenging macroeconomic environment." — Ken Hanna



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