MCA asks industry commentators about the potential of a rival bid by PizzaExpress owner Wheel Topco for The Restaurant Group, a deal that could not only see cost synergies but also combine two of the biggest brands on the high street 

A rival bid from PizzaExpress owner Wheel Topco for The Restaurant Group (TRG) has the potential to create a casual dining powerhouse combining two of the sector’s giants, industry commentators tell MCA.

Earlier this month, private equity buyer Apollo Global Management’s bid – offering £506m in cash to shareholders and giving TRG an enterprise value of £700m – was widely considered to undervalue the business, considering it paid £559m to acquire Wagamama in 2018.

Contributing editor Peter Martin tells MCA that Wheel Topco, which has approached TRG but is yet to make a proposal or offer, may value the Wagamama owner at significantly more.

“There’s been a lot of shout in the market – a lot of people think the Apollo bid was not a great valuation,” Martin says. “Other people might take the view that the group is worth more.

“On the flip side, Apollo might have to pay more, so it’s good news for some but not for others.

“It’s early days, but the overall view is that the business was undervalued…we’ll see where this goes.”

Apollo’s offer at the time looked like “a good deal,” providing a solution to TRG management’s problems with activist hedge funds such as Oasis demanding better value for shareholders, Martin adds.

However, the bid did not price in the strong position of Wagamama as well as Brunning & Price, he says.

“The investors behind PizzaExpress could have the potential to put together a portfolio with two big brands.

“PizzaExpress is still a big player in the market…so if you’ve got two of the biggest brands on the high street, you’re in a pretty good place.”

One analyst, however, pointed out that PizzaExpress has had a difficult time over the past few years.

The brand is currently controlled by a group of debt funds including Bain Capital Credit and Cyrus Capital Partners, which took ownership away from the group’s Chinese-domiciled former owners, Hony Capital, in 2020.

“It’s a lot smaller than it used to be at its height, down from c500 to c350 sites,” he tells MCA. “That doesn’t sound like the most compelling basis for one to be delving deeper into restaurants.

“So will they want to pay a big premium? We don’t know how much money the investors have got and what the risk profile is.”

Langton Capital CEO Mark Brumby highlights that other potential counterbidders are said to be examining offers.

“It costs little to sniff around,” he tells MCA. “The price is low, Wagamama offers growth, the irrevocable agreements do not bind the major shareholders in the event of a chunky counterbid and, looking at it from the buyer’s point of view, there would be some synergies that wouldn’t be there for Apollo.

“In addition, PizzaExpress, frankly, could do with a bit of help.”

A counterbid would therefore “make sense,” he says, given PizzaExpress as a standalone business “does not have the growth opportunities that Wagamama has.”

Another industry consultant echoed these comments, telling MCA: “I think there is compelling logic in putting together two cuisine champions like Wagamama and PizzaExpress.

“There will definitely be cost synergies too. If they are serious then this is real competition for Apollo.”

A rival bid would need to be at least 10% richer for irrevocable shareholder undertaking to lapse.

Brumby adds: “TRG, under Andy Hornby, has done much of the heavy lifting before, during and after Covid with the disposal of the leisure division representing just the most recent of a number of strategic moves.”

He also asks: “A question would clearly be, why didn’t PizzaExpress beat Apollo to the punch in the first place?”