The Restaurant Group: Apollo has a taste for Wagamama owner

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Sophisticated continentals like to bash British dining. The Restaurant Group must shoulder some of the blame given mixed customer reviews for its chains, including Garfunkel’s and Frankie & Benny’s. The former has shut its doors, while TRG’s lossmaking division containing the Frankie & Benny’s chain was sold last month.

On Thursday, TRG was itself on the menu. An offer from buyout fund Apollo values the group at £700mn including debts. What Apollo would get is the 80 or so pubs TRG owns, plus its lucrative airport concessions.

Shareholders may find this price no more appetising than a warmed-up lasagne. Before the offer, the share price had lost some 80 per cent of its value over the past five years. That period coincides with TRG’s ownership of its top asset, Asian style chain Wagamama, acquired in 2018 for £560mn.

Activist fund Oasis should be pleased. It has agitated for change over the past year and that has had some effect. Shares were trading as low as 26p a year ago. The cash offer at 65p is at a 67 per cent premium to the one-year average. Oasis has already agreed to hand over its 18 per cent stake.

Any longstanding shareholders will want to chew over the details more thoroughly. An enterprise value multiple of about 8 times next year’s ebitda might seem fair compared with peers such as Loungers trading on 6 times. Bowling lane operators receive similar valuations. Pub chain Mitchells & Butlers gets an 8 times multiple but it does own 80 per cent of its property. 

And property offers the real meat which Apollo seeks. TRG has its own freehold property portfolio, valued at £160mn at the end of last year. Apollo could seek to extract cash from this via a sale and leaseback transaction. If seen as a source of cash, that would in turn reduce the enterprise value of the deal.

Seen this way the deal valuation multiple falls to near 6 times. That is cheap enough for TRG’s long-suffering shareholders to deserve a few more crumbs from Apollo’s plate. Even after putting some discount on to the estate’s valuation, shareholders should hold out for a price closer to 80p.