Bar Burrito - 1180879

Morgan Davies, founder and CEO of Barburrito

The Restaurant Group has acquired Barburrito, the fast-casual Mexican chain, for £7m.

The acquisition represents a 12-month run-rate EBITDA multiple of 4.4x.

TRG said the deal for the 16-strong operator is well aligned with consumer trends including healthy eating, convenience, customisable cuisine, with an average spend per customer of c.£10.

Meanwhile TRG announced it had chosen to make an early repayment of £44m of term-loan facilities; and has purchased interest rate caps on £125m of debt.

Barburrito is trading well, up 22% in like-for-like sales in Q1, and 20% in the year-to-date.

Its YTD performance against the Coffer Peach restaurant tracker is up 14%.

The brand, which was founded and led by Morgan Davies, will be integrated into TRG’s Leisure & Concessions division, with the key operational team retained.

TRG said the sites have historically generated strong returns on invested capital in excess of 30%, and so believes there is significant scope to further develop and expand the brand, particularly in the south of England, where there is limited presence.

The Leisure & Concessions team is familiar with the business, having operated two sites previously as franchises in UK airports.

The total consideration of £7m will be paid entirely in cash by TRG.

Morgan Davies, founder of Barburrito, commented: “I am very proud of what we have achieved at Barburrito. We have gone from a simple idea to set up a cool restaurant selling freshly made burritos to being a sophisticated and professionally run hospitality business with multiple brands, operating in great locations and with fantastic teams across the UK.

”It was really important for me to find a good home for Barburrito and I am personally delighted that TRG have chosen to take the brand forward now. They are a great operator, who we know well, with the firepower to really grow and develop Barburrito into a leading national brand. This transaction will allow the Barburrito business to move to the next stage of its growth within TRG’s strong brand and site portfolio.”

For the period ended 26 September 2021, Barburrito’s profit before tax was £1.7m and as at 26 September 2021 its gross assets were £3.9m.

The profit before tax figure for the period benefited from significant temporary government support (i.e. VAT reduction and property grants).

The 16 existing sites are expected to contribute adjusted company level EBITDA and profit before tax of c.£1.6m and c.£0.8m respectively to TRG over the next 12 months.

Henry Wells, head of consumer at finnCap Cavendish - the M&A advisory team at finnCap Group which advised on the deal for Barburrito -  commented: “There is nervousness about the outlook for the consumer at present but Morgan and Steve have developed a great business with a strong brand and the deal is testament to this. It has been great working with them and we look forward to observing the ongoing success of Barburrito as part of TRG.”

Meanwhile, the group said given its significant cash headroom and confidence in the underlying cash generation across the businesses, it has repaid a further £44m of its term loan in June 2022, reducing its total available debt facilities to £361m.

The debt facilities currently comprise a £241m term loan and a £120m RCF facility which is undrawn. The group currently has cash headroom in excess of £190m against these facilities.

To manage the risk of interest rate increases on its debt facilities, TRG purchased interest rate caps as follows:

• On £125m of debt limiting the SONIA base rate to 0.75% for a total cost of £2.2m from November 2022 to November 2025; and

• On £100m of debt limiting the SONIA base rate to 0.75% for a total cost of £0.9m from November 2025 to November 2026. These caps significantly reduce the impact of interest rate changes on our debt over the next four years

As a result of the £44m early repayment of the term-loan, the group maintains its previous guidance for the expected P&L interest charge (pre-IFRS 16) for FY22 at between £24 and £25m, despite the significant increase in the SONIA base rates that have come into effect and possible further interest rate increases to come. The purchase of the interest rate caps provides further protection for TRG over the next four years.