Hostmore made a proactive move to agree to acquire its US-based franchisor, TGI Fridays Inc, after not getting credit in the market for the “thorough turnaround” it had achieved in its business.

Chairman Stephen Welker and CEO Julie McEwan told MCA the £177m proposed ‘reverse takeover’ has been in the making since late last year, amid a wider effort to enhance shareholder value.

Hostmore announced the deal yesterday (16 April), stating that the combined group would have significantly increased scale – bring 493 franchised stores (including the UK estate) under a single umbrella – and improved strategic, operational, and financial flexibility.

“We’ve done a pretty thorough turnaround in the past year, all credit to the team,” Welker said. “The market wasn’t rewarding us for all the efforts that we put in, so we had do something proactive.

“This has come about as what could be a pretty huge win for both businesses.”

The US business had considered going public in 2019 – plans which were stalled by the pandemic – and had more recently revisited the idea in discussions with the UK business last year.

“For Hostmore shareholders, the major victory is that we’re buying [subject to completion] into a franchisor business, not just a bunch of other stores,” Welker said.

TGI Fridays is expected to be purchased for an enterprise value of £177m, or approximately 5.4x its FY23 underlying EBITDA.

Welker said this represented a highly attractive acquisition multiple for the established franchisor.

CEO Julie McEwan added that both companies share close ties beyond their shared brand. Prior to Hostmore’s establishment in 2021, private equity firm Epiris owned TGI Fridays UK between 2014 and 2017, before which the UK and US businesses existed as one.

“We’ve had a longstanding relationship of mutual respect and share a lot of strategy, with a lot more to share going forward,” McEwan said.

Over the past 12 months, Hostmore has undertaken a “high ROI organic growth” strategy of going back to its roots as a cocktail bar-led concept.

The ‘Raising the Bar’ campaign – positioning the bars as the heroes within each restaurant – as well as deals such as ‘2 for 1’ cocktails have seen success in bolstering drinks revenue, according to McEwan.

“The US is also delivering a similar revitalised plan to rekindle the brand’s heritage.

“We’re the original American cocktail bar and restaurant, famous for everyday celebrations. ‘Raising the Bar’ goes back beautifully to our heritage.

“There’s no brand better placed to own that celebrations space.”

The similarities between US and UK strategy together form a “cohesive” approach for the combined group, McEwan explains, with the bar-led approach delivering results and set to continue.

“Consumer spend has been tight in the UK and other parts of the world,” she adds. “We have to differentiate and offer that experiential visit.”

The combined group will be renamed TGI Fridays plc and will trade on the London Stock Exchange.

It is expected to continue using Hostmore’s revised capital allocation policy framework as set out in May 2023 to prioritise debt reduction and shareholder returns.

It further expects increased stability in earnings and cash flow as a result of diversified business channels and geographies.