The company will fund the acquisition of the Asian Restaurant Group using £357mln in cash, £202mln in debt and a £315mln fully underwritten rights issue.
The Restaurant Group (TRG) said Wagamama is a has a “differentiated, high growth pan-Asian proposition that has consistently and significantly outperformed its core UK market”. It believes the chain is well placed to capitalise on the trend for healthy eating.
Following the completion of the deal, TRG plans to expand Wagamama in the UK, pilot new “food to go” offerings and explore international growth.
“The transaction not only gives us a great brand but also creates a business with a multi-pronged growth strategy which will enhance earnings with continued selective UK rollout, accelerated via conversions of some TRG sites; by further leveraging the brand in Concessions both in the UK and internationally; by maximising the opportunities presented by the rapidly growing delivery sector; and by optimising the potential within international markets,” said TRG chief executive Andy McCue.
Shares in TRG dropped 7.4% to 274p in morning trading.
Wagamama, founded in 1992, has 133 restaurants in the UK and five in the US as well as 58 franchise sites across Europe, the Middle East and New Zealand. Last year, the chain reported revenue of £307mln and underlying earnings of £43mln.
The acquisition comes at a challenging time for the restaurant sector, which has been hit by weak consumer confidence and tough competition. Struggling burger chains Gourmet Burger Kitchen and Byron are closing down stores across the UK while steak restaurant Gaucho Group collapsed into administration in July.
Sales pick up after World Cup
In the deal announcement, TRG also updated the market on current trading. It said like-for-like sales rose 1.4% in the 14 weeks after the end of the World Cup on 15 July.
In August, TRG cut its full-year profit guidance after the World Cup and extremes in the weather dented sales in the first half. The World Cup meant people spent more time in the pub than at restaurants and weather extremes kept customers away.
On Tuesday, TRG said total sales for the year to date are down 0.5% or 2.2% on a like-for-like basis.
ShoreCap repeats 'buy' rating
Analysts at Shore Capital maintained a 'buy' rating on TRG, saying it thinks the deal should lead to faster growth and reduce the company's exposure to the structurally challenged parts of the group.
"We do harbour some concerns of moving back to the high street and reducing the proportionate mix of higher value concessions, especially given the debt, although on balance a much-improved business is set to emerge," the analysts said.
"The update on current trading is also encouraging with YTD LFL sales of -2.2% implying +1% over the last 8 weeks, consistent with our full year expectations. We reiterate our BUY stance.