The Restaurant Group PLC (LSE:RTN) (TRG) said it will acquire Mexican restaurant chain Barburrito for £7mln to be paid entirely by cash.
London-listed TRG said the purchase is “aligned with key consumer trends,” such as healthy eating and convenience, as well as offering attractive prices with an average customer spend of £10.
Furthermore, Barburrito’s 16 sites have generated strong returns on invested capital, often in excess of 30%, and TRG said it believes there is significant scope to develop and expand the brand, particularly in the south of England. The initial expansion plan is to double the number of sites over the next four years.
The £7mln consideration represents a next 12 months run-rate underlying earnings (EBITDA) multiple of 4.4x, TRG said.
For the period ended 26 September 2021, Barburrito reported a profit before tax of £1.7mln, with gross assets of £3.9mln. Currently, the existing sites are expected to contribute EBITDA and profit before tax of £1.6mln and £800,000 respectively to TRG over the next 12 months.
TRG also said it has decided to repay an additional £44mln to its term loan due to significant cash, reducing its debt to £361mln.
The debt currently comprises a £241mln term loan and a £120mln reduced credit facility, which is undrawn. The group said it currently has cash headroom in excess of £190mln against these facilities.
Payment of an extra £44mln will have no impact on the previous profit guidance, which is still anticipated to be within £24mln and £25mln for the year, the group noted.
TRG also said it is adding interest rate caps to manage any risk against rising rates.