On November 28, 2024, Fortress Investment Group, a global investment manager with approximately $48 billion in assets under management, announced its intention to acquire Loungers PLC, a prominent UK café-bar and restaurant operator, for approximately £338.3 million. The acquisition will be executed through a scheme of arrangement, offering Loungers shareholders 310 pence per share in cash, representing a 30.3% premium over the previous day's closing price of 238 pence.
About the Companies
Loungers PLC, founded in 2002 in Bristol, operates three distinct brands: Lounge, Cosy Club, and Brightside, with a portfolio of 280 sites across the UK. The company has demonstrated robust growth, reporting a 19% increase in revenue to £178.3 million and a 53.8% rise in pre-tax profit to £5.9 million for the half-year ending October 6, 2024.
Fortress Investment Group, headquartered in New York, has a history of investing in UK consumer businesses, including Majestic Wine, Punch Pubs & Co, and Curzon cinemas. The firm focuses on acquiring businesses with strong management teams and supporting their long-term growth.
Strategic Rationale
The acquisition aligns with Fortress's strategy to invest in resilient consumer-focused businesses. Loungers' diversified portfolio and consistent growth make it an attractive addition to Fortress's UK holdings. The partnership is expected to accelerate Loungers' expansion plans, leveraging Fortress's financial resources and industry expertise.
Valuation and Comparable Transactions
The offer values Loungers at an enterprise value of approximately £350.5 million, including debt.
This valuation reflects a premium consistent with recent transactions in the UK casual dining sector. For instance, in 2018, The Restaurant Group acquired Wagamama for an enterprise value of £559 million, representing a multiple of 13 times EBITDA.
While specific EBITDA multiples for the Loungers deal have not been disclosed, the 30.3% premium over the share price suggests a competitive valuation in line with industry standards.
Potential Challenges
Despite the strategic fit, the acquisition faces potential challenges. Maintaining Loungers' unique brand identity under new ownership is crucial to preserving customer loyalty. Additionally, the UK casual dining sector has experienced volatility, with rising costs and changing consumer preferences impacting profitability.
Effective integration and strategic execution will be essential to navigate these challenges and realise the anticipated synergies.
Shareholder Perspectives
The Loungers board has unanimously recommended the offer.
However, significant shareholders, including Slater Investments and AXA Investment Managers, have expressed opposition, arguing that the offer undervalues the company's long-term prospects.
This divergence highlights differing views on the company's valuation and future potential.
Conclusion
The proposed acquisition of Loungers PLC by Fortress Investment Group presents opportunities for growth and expansion within the UK casual dining market. However, success will depend on preserving Loungers' brand ethos, effectively integrating operations, and navigating sector challenges. Shareholder approval remains a critical factor, with differing opinions on the offer's valuation underscoring the complexity of the transaction.
Written By: Ben Harris
Sources: Investing UK, The Standard, AJ Bell, Duke Street, Deloitte, The Times
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