Hostmore, the operator of the TGI Fridays franchise in the UK, has reached agreement for a proposed all-share acquisition of TGI Fridays in the US for an enterprise value of £177m.

The proposed transaction would bring together American-themed casual dining brand TGI Fridays’ largest franchisee with the global franchisor, classifying as a reverse takeover under listing rules and conditional upon approval by existing Hostmore shareholders.

The combined group will be renamed TGI Fridays plc, with its shares to be admitted to trading on the London Stock Exchange’s Main Market.

The deal is a “highly strategic” move from management, with Hostmore shareholders to benefit from a material shareholding in the capital-light franchise and licensing fee business of the combined group, which achieves high margins and strong cash flow conversions.

The acquisition is a “natural fit” for both businesses and would bring them back together following their separation in 2014. It is intended to provide greater scale, flexibility, and financial stability upon completion to be able to accelerate Hostmore’s strategy and unlock earnings power that should command a higher market multiple.

TGI Fridays primarily operates through franchising and licensing agreements in the US and in 43 international markets. It also operates a network of 100 company-owned stores in the US.

It is the master franchisor to 493 franchised stores, with 128 located in the US, 89 in the UK (the Hostmore portfolio), and 276 across a further 42 countries. It has 4,447 employees. 

TGI Fridays’ FY23 total global systemwide restaurant sales amounted to $1.4bn, comprising $672m in the US and $708m in international markets.

The transaction would result in existing Hostmore shareholders holding a 36% shareholding in the enlarged business upon completion, with TGI Fridays shareholders holding 64%.

The enterprise value of £177m is approximately 5.4x of TGI Fridays’ FY23 underlying EBITDA. The combined group would have had underlying FY23 revenue of c£490m, an approximately 9% EBITDA margin, and free cash flow of more than £30m.

The combined group would further have significantly increased scale, as well as improved strategic, operational, and financial flexibility. It expects increased stability of earnings and cash flow from diversified business channels and geographies.

Stephen Welker, chairman of Hostmore, said: “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. I want to thank Julie McEwan, our CEO, Matthew Bibby, our CFO, and their colleagues, both in store and at executive levels, for their tireless efforts to put Hostmore in a stronger position which has led to the possibility of this compelling strategic transaction.

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. We look forward to presenting our existing and new shareholders with the opportunity to participate in the significant value creation potential of the combined group going forward.”

Rohit Manocha, chairman of TGI Fridays, said: “Today marks an exciting moment for the next chapter of the TGI Fridays story, as we continue to drive forward our brand revitalisation strategy. Bringing together TGI Fridays with our leading franchisee partner in Hostmore, in our largest international market, the United Kingdom, has a compelling and highly complementary strategic logic to it.

Our two companies share close ties and have a longstanding, excellent working relationship and mutual respect. A combined group would stand to gain from our focused efforts with the benefit of greater combined scale, efficiencies and flexibility.

By joining forces with Hostmore, this would support our long-term organic growth strategy and enable us to better harness TGI Fridays’ global franchising and licensing infrastructure. I look forward to the prospect of working with the teams at Hostmore as a part of a new ownership structure, to ensure we keep delivering ‘That Fridays Feeling’ that our guests across the world know and love.”