12th Oct 2023 12:42
(Alliance News) - Restaurant Group PLC on Thursday said it has agreed to be acquired by funds managed by private equity firm Apollo Global Management Inc, but analysts questioned whether the 65 pence per share offer was too low.
Glasgow-based Restaurant Group owns the Wagamama restaurant chain and also operates pubs and travel food concessions. In total, it operates 380 restaurants and pubs across the UK.
Apollo is a New York-based alternative asset manager. Via acquisition vehicle Rock BidCo Ltd, it is offering to pay 65 pence per Restaurant Group share in cash.
The offer values the equity of Restaurant Group at GBP506 million and the company as a whole, including debt, at an enterprise value of GBP701 million. It noted that this is 9 times Restaurant Group's adjusted earnings before interest, tax, depreciation and amortisation in the 12 months that ended July 2.
Restaurant Group shares had closed Wednesday in London at 48.45p, and were up 38% at 66.51p on Thursday afternoon, giving a market capitalisation of GBP508.2 million.
Russ Mould, investment director at AJ Bell, warned that some shareholders might consider the business to be worth a lot more than 65p per share when factoring its potential over the coming years.
"The fact the share price...is trading slightly higher than the takeover offer suggests the market believes we could either see a competing bid or shareholder opposition to the price in an attempt to make Apollo raise its offer," he said.
"Such moves have been commonplace over the past few years, with private equity players throwing their hat into the ring to gauge appetite and then upping their offer to a more reasonable level."
Restaurant Group on Thursday said its board unanimously recommends the offer to shareholders, and acceptances for it already have been received from shareholders representing 19.9% of its total.
AJ Bell's Mould noted that activist investors Oasis and Irenic Capital, who own 17.8% and 1.9% stakes respectively, have voted in favour of the offer. As a result, Mould said that any opposition to the takeover will have to be led by asset managers Columbia Threadneedle, Royal London and Cyrus Capital, being three of the other biggest shareholders.
Greg Johnson, a research analyst at Shore Capital, argued that 80p per share would be a "starting point more consistent with the longer-term opportunity" for Restaurant Group.
Johnson explained that the enterprise value of GBP700 million represents a enterprise value to earnings before interest, tax, depreciation and amortization of 9 times in the year to July, falling to 8.6% times Shore's financial 2023 estimates and 7 times the following year.
The Shore analyst said he did not believe this reflected the quality of the firm's estate, especially with Restaurant Group having recently exited its challenged leisure business, and the progress it was making across its strategic objectives on margin accretion and deleveraging.
Johnson said that the delivery of these strategic objectives could improve the company's Ebitda to GBP130 million and potentially worth around 100p to 120p per share - around 7 to 8 times Ebitda - on a three-year view.
"80p per share would be a starting point more consistent with the longer-term opportunity or maybe we just long for a bygone era for UK equities," he said.
By Heather Rydings, Alliance News senior economics reporter
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