Hostmore announces all-share acquisition of TGI Fridays

National operator Hostmore plc has reached an agreement on a non-binding basis for a proposed all-share acquisition of TGI Fridays Inc.

TGI Fridays is the global American-themed casual dining brand and the company's largest franchisor. It operates primarily through franchising and licensing agreements in the US and 43 international markets. It also operates a network of company-owned stores in the US. 

The proposed transaction

The parties have agreed that the proposed transaction would result in existing Hostmore shareholders taking a 36% shareholding in the enlarged business upon completion, with TGI Fridays shareholders holding a 64% portion of the combined group. 

The deal is being negotiated on an exclusive basis and is subject to, among other things, completion of a confirmatory due diligence and the parties entering into binding transaction documentation. It would be classified as a reverse takeover under the listing rules of the Financial Conduct Authority (FCA) and would therefore be conditional upon the approval of an ordinary resolution by existing Hostmore shareholders.

Highlights of the deal

TGI Fridays is expected to be purchased for an enterprise value of £177m, more than five times the brand's underlying FY23 EBITDA, representing an attractive acquisition multiple for a large, global franchisor. 

The combined group would have had underlying FY23 revenue of approximately £490m, an EBITDA margin of around 9%, and free cash flow of more than £30m. 

Similarly, London and internationally listed franchisor businesses currently trade at an enterprise valuation multiple averaging 14 times EBITA, representing a significant re-rating opportunity for shareholders. 

The combined group would have a considerably increased scale, stability of earnings and cash flow due to its diversified business channels and geographies. 

It is expected that the business will be renamed TGI Fridays plc, with its shares admitted to trading on the London Stock Exchange's Main Market under the share ticker of 'TGIF'. 

Stephen Welker, chairman of Hostmore, comments: "I am pleased to announce that we are in advanced discussions with TGI Fridays on the terms of a proposed transaction, which would reunite two businesses that are a natural fit, and were one business until as recently as 2014. 

"Hostmore has made good progress in executing its turnaround strategy over the past year by reducing costs, revising our capital allocation policy to focus on debt repayment and shareholder distributions, and pursuing high RoI organic growth initiatives.

"This acquisition would give us the scale and flexibility to accelerate our existing strategy and enhance the financial outlook for Hostmore and scope for shareholder returns, while also strengthening our ability to provide an exceptional guest experience by harnessing our distinctive, trusted brand as the home of celebrations."


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