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Morning Briefing for pub, restaurant and food wervice operators

Thu 12th Oct 2023 - Update: TRG reaches agreement on sale to Apollo Global Management
TRG reaches agreement on £701m sale to Apollo Global Management: Rock BidCo Limited (Bidco) – a new vehicle from US private equity firm Apollo Global Management and The Restaurant Group (TRG), the Wagamama and Brunning & Price owner, have announced that they have reached agreement on the terms and conditions of a recommended all cash acquisition by Bidco of the entire issued, and to be issued, ordinary share capital of TRG. The acquisition values the Andy Hornby-led TRG’s entire issued, and to be issued, ordinary share capital at approximately £506m on a fully diluted basis, and implies an enterprise value of £701m and a multiple of approximately 9.0 times TRG’s adjusted Ebitda for the twelve months ended 2 July 2023. The acquisition price per scheme share represents a premium of approximately: 67% to the volume-weighted average price of 39p per TRG share for the twelve-month period ended 11 October 2023. The bid has received the support of TRG’s directors and activist shareholders Oasis Management Company and Irenic Capital. The acquisition is currently expected to complete in early 2024. Apollo said that it has closely followed TRG over many years and believes that the business is a “high quality and leading company in the casual dining market with an attractive portfolio of concepts and brands and an experienced management team with a clear vision and strategy for the future direction of TRG”. It said: “Apollo believes TRG has established itself as a highly regarded operator, with the necessary capabilities and scale required to attract and retain customers and the best talent in the industry. Bidco holds the TRG management team in high regard and values their operational expertise and experience. Bidco intends to work with the existing management and employees of TRG to support the business with a view to providing attractive and sustained growth and development opportunities for TRG’s stakeholders. Apollo is highly supportive of TRG’s management strategy and it is confident in the future prospects of TRG’s businesses. Apollo is excited to partner with TRG to continue developing the business by investing in the customer offering and future growth of its footprint. Through Apollo’s deep industry knowledge and the successful track record of the Apollo Funds’ investments in the consumer, retail and hospitality sectors, Apollo is qualified to support TRG and its management team through the next phase of growth for Wagamama, pubs and concessions. Finally, Apollo believes that the development of TRG will be best served as a private business under Bidco’s ownership, with access to capital and the benefit of a long-term investment approach. This will allow it to continue to deliver on its strategic objectives whilst enabling it to respond to structural changes in its industry in the medium and long term.” TRG said: “TRG received a proposal from Apollo to acquire the entire issued and to be issued share capital of TRG. While the initial proposal received was not at a level that the TRG directors considered reflected appropriate value for TRG, during a period of negotiations, Apollo made a further three proposals, resulting in the acquisition price at 65p per TRG share. The acquisition price values TRG’s entire issued and to be issued share capital at approximately £506m on a fully diluted basis, and implies an enterprise value of £701m, and a multiple of approximately 9.0 times TRG’s adjusted Ebitda for the twelve months ended 2 July 2023. The acquisition provides an opportunity for TRG shareholders to achieve an attractive premium to the current share price, which has performed strongly, trading near its 52-week high levels. The TRG board believes the certain value represented by the cash acquisition is a superior outcome for TRG shareholders compared to continuing to pursue the independent strategy of TRG. The TRG board has confidence in the margin accretion plan over the next three years, but is cognisant of the premium, certain value of the acquisition against the prevailing risk for all consumer-facing businesses with exposure to macro-economic uncertainties. The TRG board has also considered a number of alternative scenarios for the future shape of the portfolio, which have been explored to identify possible realisable value for some TRG businesses. The TRG board believes that the options analysed, including the impact of dis-synergies and other value leakage, would deliver cash proceeds below both sell-side analyst expectations and the TRG board’s own expectations and would represent a lower value outcome to TRG shareholders than the acquisition. In addition to the financial terms of the acquisition, in considering the intention to recommend the acquisition, the TRG directors have also given due consideration to the assurances given by Apollo to its intentions with respect to the future operation of the business, including Apollo’s intentions to continue growing the business, and the importance placed by Apollo on the existing employees of TRG.” Ken Hanna, the chair of TRG, said: “TRG operates a diverse portfolio of some of the UK’s leading hospitality brands. As a result of ongoing positive management actions and the margin accretion plan we announced in March this year, the group has recovered well from the challenges of the pandemic and the cost of living crisis. This is evidenced by the continued strength of our trading performance versus the broader hospitality sector and the share price increasing 55% this year. In addition, the TRG board and management of TRG have reviewed in detail the strategic options available to the group, resulting in the announcement of the proposed sale of the Leisure business. 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 macro-economic environment. As such, the TRG directors intend to unanimously recommend the offer to TRG shareholders.” Alex van Hoek, a partner in AGM’s private equity business, said: “This investment aligns with our strategy of backing industry leading companies to drive profitable growth over the long-term. 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. We look forward to working with the management team and investing in TRG to accelerate its long-term strategy, leveraging our significant industry experience.”

Next Propel Turnover & Profits Blue Book shows 763 largest sector companies turning over total of £53.3bn, up from £51.2bn last month: The next edition of the Propel Turnover & Profits Blue Book, which will be sent to Premium subscribers tomorrow (Friday, 13 October), shows 763 of the largest sector companies are turning over a total of £53.3bn – up from £51.2bn the previous month. A total of 518 companies are making a profit while 245 are making a loss. The profit being made by sector companies is now outstripping losses by £1.48bn. The Blue Book shows the total profit of the 763 companies in the list is £3,462,090,613 and losses are £1,977,617,666. The Blue Book is updated each month and ranks companies by turnover, profit and profit conversion, listing directors’ earnings for the past five years. Premium subscribers also receive access to five other databases: the Multi-Site Database, which is produced in association with Virgate; the New Openings Database; the UK Food and Beverage Franchisor Database; the Who’s Who of UK Food and Beverage; and the UK Food and Beverage Franchisee Database. Premium subscribers are also to get access to the videos from this month’s Talent and Training Conference. They will be sent 13 videos on Friday, 27 October at 9am. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email to upgrade your subscription. Premium subscribers are also being given exclusive access to the recording and slides to Propel Multi-Club Conferences. They also receive their morning newsletter 11 hours early, at 7pm the evening before; regular video content and regular exclusive columns from Propel group editor Mark Wingett.

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