Deal hungry private equity firm TPG Capital LP is feasting on U.K. casual dining group Prezzo Restaurants plc, forking out between nine and 10 times Ebitda to spoon its Italian and Mexican-style eateries onto a platter valuing its stock at £303.7 million ($482 million).
With net cash currently at about £10 million, the offer generates an enterprise value of about £293 million.
TPG beat Advent International Corp. to seal the deal with the founding Kaye family, who are selling to realize their investment as well as to generate new funding for expansion. The family also recognized, according to a statement, that the skills and infrastructure required to manage a growing estate of 249 units countrywide are different than those that were required during the company's rapid early growth.
The Kaye family also founded and later sold the Ask Pizza and Zizi chains of Italian restaurants before going on to build the Prezzo chain.
Since its initial public offering on London's Alternative Investment Market in March 2002, Prezzo has grown from four units in London and now operates under a series of separate and distinct brands. It said it has delivered total shareholder return at the transaction price of 945%.
Prezzo appointed Sam Fuller and Katherine Hobbs of Altium Capital Ltd. earlier this year to advise them on a sale and contact various possible buyers without running a formal auction process, which might have disrupted day-to-day management. Only TPG and Advent submitted proposals and were allowed into the data room.
Based in Woodford Green, England, the target operates 203 Prezzo branded outlets offering an Italian style pizza, pasta, grills and salad menu, as well as a smaller chain of Chimichanga-branded Mexican restaurants and other Caffe Uno and Cleaver outlets.
TPG is offering 126.5 pence a share in cash to take the company private via a Scheme of Arrangement requiring the holders representing at least 75% of the shares to vote in favor of the deal. It already has irrevocable undertakings to sell and vote in favor of the Scheme from Prezzo's directors, the Kaye family and other shareholders for a total of 62.33% of the shares.
TPG will finance the acquisition with a mixture of cash from its own funds and debt arranged by Barclays plc and Jefferies Finance plc.
The deal values the equity at 9.9 times Prezzo's adjusted Ebitda of £28.9 million for the year to December 2013 and 9.2 times adjusted Ebitda of £31.0 million for the 12 months ended June 2014. That compares with the recent sale of rival casual dining chain Pizza Express Ltd. to Chinese buyout firm Hony Capital at about 9.5 times Ebitda.
The sale is also at a premium of and 18.5 times adjusted and diluted earnings per share of 6.85 pence for 2013. Prezzo reported 2013 revenue of £166.5 million and had assets of £107.2 million at the end of the year. It also had no bank debt and operated throughout the 2013 financial year with a net cash position.
TPG's team, led by Alan Halpern, was advised by Andrew Bell and Badri Wadawadigi of Jefferies International Ltd. and Karen Frank of Barclays. Prezzo was advised by Altium and Bobbie Hilliam of Cenkos Securities plc, the company's nominated adviser, or Nomad, required under the AIM listing rules.
Prezzo's share fell 0.8% to close at 124 pence.