Electra Private Equity, the backer of TGI Fridays UK, has this morning reported it has experienced a £13m drop in the fair value of the Karen Forrester-led restaurant chain over the year to 31 March 2018.
It said the fair value of the business, which has been reviewing its options, stood currently at £149m, down from £162m the previous year.
Electra said that most investments in its portfolio had increased in value, although two businesses, TGI Fridays and Hotter, in common with most of the UK consumer industry, suffered from unusually severe weather in the first quarter of 2018, causing the double impact on valuations of a short term drop in EBITDA and consequent higher net debt positions.
Discussing its investments in TGI and Hotter Shoes, the company said: “Since 1 June 2017 we have been working closely with management to understand the businesses in detail, to optimise strategic and operational planning and to ensure robust implementation plans are in place. We have bought out non-management minority shareholders in each business to increase control and facilitate the actions necessary to grow value.
“As consumer businesses with a material retail presence the performance of both businesses was impacted by the unusually severe weather of February and March. We estimate that this reduced the valuation of these businesses as at 31 March by £15-20m.
“TGI Fridays is a well-run profitable business with a track record of outperforming its peers across the economic cycle. Demand in the casual dining sector remains strong. However cost pressure combined with over-supply has led to a challenging current environment. Future value creation is focused on a continued sustainable development plan and operational continuous improvement in anticipation of a sector recovery as competitors retrench following a period of unsustainable growth. The business is in a strong position to take advantage of opportunities in the sector as the current over-supply is addressed.”
In January, Electra appointed advisers to review its options for the Forrester-led group.
The firm is working with advisers from Morgan Stanley on the process, which could lead to the sale of the 81-strong business. Electra acquired the then 66-strong TGI Fridays in a c£225m deal at the end of 2014.