While the cash offer on the table may not price in Fulham Shore’s full potential, the acquisition by Toridoll represents a good deal at a time when the restaurant sector is not yet back to full strength, analysts have said.

The operator of the Franco Manca and The Real Greek restaurant brands yesterday (5 April) announced that its directors had reached an agreement on the terms of a recommended cash offer, from Great Sea Kitchens Limited – a newly incorporated company established on behalf of Toridoll Holdings.

Under the terms of the deal, which values the business at £93.4m, shareholders will receive 14.15p per share – representing a 34.8% premium to yesterday’s closing price of 10.5p.

Taking the group’s 2022 EBITDA, the buying price represents a multiple of x4.6. 

One might argue this doesn’t fully price in Fulham Shore’s potential, Danni Hewson, finance analyst and broadcaster at AJ Bell noted.

“Eighteen months ago, it was trading close to 20p a share, after all. But in an economically uncertain environment, the price on the table might seem reasonable given the circumstances and possibly the best deal that could emerge for some time,” she said.

Analysts at FinnCap Capital Markets shared a similar view: “We are some way from full recovery in the restaurant space but the offer was too tempting for management to refuse. To quote the old saying, ‘a bird in the hand is worth two in the bush’.” 

But Shore Capital said the price offered came in-line with its fair value and alongside a current trading backdrop for FY23 that looks very much as expected.

It believes the directors are happy with the offered price and unlikely to go for a bigger bite of the cherry. “A third-party counteroffer is still possible but does not remain our base case,” the analyst added in a note following the announcement.

“In the end the shareholders will need to form their own view, but this deal offers the shareholders liquidity at a premium to the market price. This comes after having endured a difficult few years brought about by the pandemic and cost of living crisis,” Graeme Smith, managing director, AlixPartners told MCA.

Common sentiment that came through in the reactions from analysts was that there is significant potential for Fulham Shore to expand both of its brands in the UK and internationally – something that was key to Toridoll’s decision to acquire the business.

Smith said it was a really interesting combination of an experienced sector investor with an established multi-brand international operator.

“Capdesia know the UK and Europe market well which combines with the branding, supply chain and operational experience of Toridoll. This combination can help to open up even more growth channels for Franco Manca and The Real Greek through franchising, overseas locations and different location types such as travel hubs,” he said.

Shore Capital said it had previously noted its belief that Italian cuisine was best positioned to benefit from large scale capacity withdrawal, of over 20% vs pre-Covid, having typically been oversaturated. “However, we sense the Bidco could also be wanting to breathe life into the overseas franchise opportunity Fulham Shore has begun rolling out.”

It noted the potential for 200 Franca Manca (vs 70 today) and 50 The Real Greeks (vs 27 today).

It’s another tick in the box for a career of chairman Page that has seen him build up a series of restaurant businesses and then sell them, Hewson added.

He was a key figure in the roll-out of Pizza Express which subsequently was bought by private equity firm TDR Capital, and then again with Gourmet Burger Kitchen which was acquired by Nando’s owner.

Smith said it was “very positive for the sector” that deals like this are being done. He said it builds on trends AlixPartners has seen developing, where trade buyers are becoming more active and using multi brand strategies to expand through franchising, new territories and using technology more effectively. “We expect to see more deals to come through 2023.”

Shore Capital was also positive about the impact on the wider market in terms of valuations.

“We sense this vote of confidence in the UK small cap restaurants segment alongside the upbeat updates from peers on current trading and the broader consumer could act as a catalyst to put valuations back on a positive trajectory towards their historic ranges,” Shore Capital said.

FinnCap also said it expected other restaurant stocks to react positively with Restaurant Group the most likely beneficiary, given the activist noise around the stock.