Syndicated investment of a £215m investor buy-out with £108m of private equity investment.
Wagamama is a well-known restaurant chain with sites in the UK, Europe, USA, the Middle East and New Zealand offering Asian themed food. It was established in 1992 and operates popular, award-winning noodle restaurants offering fresh, pan-Asian cuisine in a friendly, vibrant setting. The menu features a variety of noodle and rice dishes, salads and side dishes plus some local specialties that take advantage of regional produce and taste. It had been the subject of many private equity rounds of investment with our involvement being in what was believed to be its 4th management buy-out.
Wagamama had a consistent record of growth and produced an exceptional underlying return on sales of c20% and good return on capital. It therefore had an established and successful business model, with plenty of potential to continue its roll out. Consumers were also embracing Asian cuisine as a core eating out meal. This combination meant that whilst the c9x EBITDA price was seen as being full, the quality of the opportunity warranted the valuation.
The growth strategy
No changes to the core model were anticipated and the growth strategy was simple – open more sites. With only 108 UK sites and 38 in the rest of the world, there was seen to be plenty of ‘white space’ for the company to expand into. The UK was to be the focus of expansion in the near term with overseas growth, some of it through franchising, to follow later.
How did the company create value?
The company executed its growth plan well, growing its number of UK sites from 108 to 133 and overseas restaurant numbers from 38 to 63. Its revenue growth was high with sales growing from c£113m to c£307m with Wagamama delivering 17% UK revenue CAGR (compound annual growth rate) between FY 2015 and FY 2018 making it one of the outstanding performers in the UK casual dining sector. A significant boost to revenue came from the introduction of home deliveries (via the likes of Deliveroo) and whilst these sales are at lower margin than restaurant sales it added to overall profitability which grew from c£25m to c£43m over this period. In 2017, the company undertook a refinancing which repaid c40% of the private equity investment through a bank refinancing, returning £8,736 per £25,000 client unit.
The company was sold to The Restaurant Group plc (‘TRG’) in October 2018 at a reported sale price of £559m, which represents £344m of value growth since the £215m IBO in 2011. This delivered a growth in equity value from c£1m to c£350m. We estimate that this equity value growth was split 50:50 between growth in EBITDA and the increase in the EBITDA multiple from 9x to 13x over this period. This equates to an investment return multiple of 3.4x. Andy McCue, CEO of The Restaurant Group, said of the acquisition “Wagamama is a fantastic brand, with a market leading pan-Asian proposition, which has consistently outperformed the casual dining market”.
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