The Restaurant Group prepares to raise £315m for Wagamama deal despite criticism

The Restaurant Group (TRG) pushed ahead with a rights issue to raise £315m to finance its acquisition of Wagamama today, despite concerns from analysts and investors.

The rights issue to raise cash for the takeover will be underwritten by JP Morgan Securities, TRG said this morning, in a deal valuing the chain at £559m.

“This a transformative deal which accelerates our growth strategy and adds a differentiated, high growth brand to our portfolio,” chief executive Andy McCue said.

“The transaction benefits both businesses, creating an enlarged group that has scale benefits and will create significant value for our shareholders, underpinned by £22m of quantified cost and revenue synergies.”

However, TRG faces claims it has neglected its core business in favour of the Wagamama deal, which was announced at the end of last month.

“This is like putting on a new roof of a building, while doing an extension but the plumbing has not been fixed and the building needs a bit of a paint job,” Liberum analyst Wayne Brown said.

Over the weekend one major institutional investor told the Telegraph: “We would be more interested if they first turned around their legacy business properly.”

The investor also criticised Wagamama’s price tag, saying it assumes significant growth in the pan-Asian restaurant chain.

However, TRG said the target’s like-for-like sales rose 12.2 per cent in the 11 weeks to 4 November, while like-for-like sales in the UK grew 7.4 per cent in the last financial year.

In the first 42 weeks of the year, TRG sales were down 0.5 per cent, with like-for-like sales dropping 2.2 per cent.

The group also owns Frankie & Benny's, Chiquito and Garfunkel's. 

Wagamama's private equity backers, Duke Street and Hutton Collins, said in June that they were putting the company up for sale in a process run by Goldman Sachs.