The Restaurant Group acquires Barburrito for £7m: The Restaurant Group (TRG), the Wagamama and Brunning & Price owner, has acquired the 16-strong burrito bar chain Barburrito, for £7m, with an initial expansion plan to double the existing estate over the next four years. TRG said that the price paid represented a next 12 months run-rate Ebitda multiple of 4.4x, and that Barburrito year-to-date like-for-like sales were currently up 20% on the same period in 2019. For the period ended 26 September 2021, Barburrito’s profit before tax was £1.7m and as at 26 September 2021 its gross assets were £3.9m. The 16 existing sites are expected to contribute adjusted company level Ebitda and profit-before-tax of circa £1.6m and circa £800,000 respectively to TRG over the next 12 months. TRG said: “The Barburrito proposition is well aligned with key consumer trends including healthy eating, convenience, customisable cuisine and offers high quality products at attractive prices with an average spend per customer of circa £10. Barburrito’s strong current trading gives us confidence in its ability to align with and extend TRG’s track record of market outperformance. The sites have historically generated strong returns on invested capital in excess of 30% and TRG believes there is significant scope to further develop and expand the brand, particularly in the south of England, where there is limited presence. The initial expansion plan would be to double the existing estate over the next four years. Barburrito will be integrated into TRG’s Leisure & Concessions division, with the key operational team from Barburrito retained. The Leisure & Concessions team is very familiar with the business having operated two sites previously as franchises in UK airports.” TRG also updated on its early debt facility repayment and interest rate caps. It said: “Given the group’s significant cash headroom and confidence in the underlying cash generation across our businesses, TRG chose to repay a further £44m of its term loan in June 2022, thereby reducing its total available debt facilities to £361m. The debt facilities currently comprise a £241m term loan and a £120m RCF facility which is undrawn. The group currently has cash headroom in excess of £190m against these facilities. To manage the risk of interest rate increases on its debt facilities, TRG purchased interest rate caps as follows: On £125m of debt limiting the SONIA base rate to 0.75% for a total cost of £2.2m from November 2022 to November 2025; and on £100m of debt limiting the SONIA base rate to 0.75% for a total cost of £0.9m from November 2025 to November 2026. These caps significantly reduce the impact of interest rate changes on our debt over the next four years. As a result of the £44m early repayment of the term-loan, the group maintains its previous guidance for the expected P&L interest charge (pre-IFRS 16) for FY22 at between £24 and £25m, despite the significant increase in the SONIA base rates that have come into effect and possible further interest rate increases to come. The purchase of the interest rate caps provides further protection for TRG over the next four years.” The sale of Barburrito, which was founded by Morgan Davies and Paul Kilpatrick in Manchester’s Piccadilly Gardens in 2005, follows a strategic review and sale process managed by finnCap Cavendish. Barburrito currently operates five sites in Scotland, five in Manchester, plus further sites in Nottingham, Sheffield, Cardiff, Leeds, Liverpool and London Paddington Station. Its estate includes sites in Edinburgh and Manchester Airports. In the ten months to 26 September 2021, the business reported turnover of £11.16m, with Ebitda of £1.3m. The deal with the Chiquito and Frankie & Benny’s owner comes 18 months after the business was acquired out of administration for £25,000 by a new entity Barburrito Group. That deal saw chairman Graham Turner lead new investment in the business backed by private investors, including north west-based businessmen Peter Cammack and Andrew Milne, who founded the Manchester-based adult social care business Zeno. They backed the existing management team of Davies and Steve Herring, finance director, in buying back 14 sites and protecting 270 jobs. Both of the latter will stand down from the business after a handover period. Davies said: “I am very proud of what we have achieved at Barburrito. We have gone from a simple idea of selling freshly made burritos to being a sophisticated and professionally run hospitality business with multiple brands, operating in great locations and with fantastic teams across the UK. It was really important for me to find a good home for Barburrito and I am personally delighted that TRG have chosen to take the brand forward now. They are a great operator, who we know well, with the firepower to really grow and develop Barburrito into a leading national brand. This transaction will allow the Barburrito business to move to the next stage of its growth within TRG’s strong brand and site portfolio. I would personally like to thank all those involved with me in the Barburrito journey. I have met some fantastic people along the way, worked with brilliant suppliers, world-class colleagues from the sector and of course the Barburrito crew who I am very proud of.” Turner said: “Morgan and his team have developed the Barburrito business into a well-respected national player with a strong delivery offering alongside the traditional site-based operations. During the pandemic the business was able to leverage its delivery business to successfully navigate a tough period for hospitality businesses. This development alongside a successful airport operation has ideally positioned the business for future growth within TRG’s stable of well-respected brands”

Wrap wars, comment by Propel group editor Mark Wingett: Less than two months after Tortilla acquired rival Chilango, another step in the consolidation of the UK’s burrito market has been taken, and this one is no less significant. If a major part of Tortilla’s thinking in acquiring Chilango was to take away the opportunity for someone to use it as a platform to create a significant rival, it would have been all too aware that the potential also existed with Barburrito. Whether it thought it would be The Restaurant Group (TRG) behind the steering wheel of the tanks now very much on its lawn is another question. The punchy £7m price tag suggests that the Wagamama owner isn’t going to hang around when it comes to meeting founder Morgan Davies’ prediction that under its stewardship Barburrito will become a leading national brand. Speculation has been circling for the past couple of months that a trade buyer was taking a very close look at Barburrito, which like Tortilla and Chilango, has come through the pandemic with good momentum behind it, aided like its rivals by strong delivery sales. Of course, Tortilla would have been seen as the obvious buyer, and although it is thought the Richard Morris-led business may have taken a look at Barburrito, it is believed that financially, Chilango stacked up as the more sensible deal. EG Group was also linked with the business, as it continues to seek brands to further enhance its F&B portfolio. In the end the buyer is someone that knows the business already, with Barburrito transport hub sites operating under the Wagamama owner’s Concessions arm since the two businesses struck a franchise partnership deal in 2018. TRG can also claim that through its Chiquito brand it also has some knowledge of the Mexican category. It has secured a brand that immediately opens up a new part of the market for it in terms of the grab-and-go/fast-casual category, and one that is ready to be rolled out from day one, whether that be in shopping centres, high streets and obviously, travel hubs. It will also add a further option to its growing delivery offer, and I would expect Barburrito to be added to Chiquito’s virtual brand offer in time. As its founder Davies says, there is massive potential for a brand that has already been through a restructure and comes out the other side a stronger, better positioned business. After the RDCP Group sold Chilango to Tortilla for £2.75m, it said the deal delivered a three-times return following its acquisition of the former brand out of administration for circa £1m in August 2020. On the back of that deal, I said that the question would be how many more investment vehicles, which have come into the sector to help businesses through the pandemic and out the other side – to provide that bridging finance – would now also look to make a quick return, especially as the dark cloud facing the sector gets larger and closer to emptying its contents. It seems the investors in Barburrito had a similar idea. A penny for the thoughts of BGF, which invested £3.25m in the then six-strong Barburrito, back in 2012, but exited at the end of 2020 via the administration process, which saw the business acquired by new entity Barburrito Group for a total consideration of £25,000. They haven’t been and won’t be the last sector investor to have taken a considerable hit on an investment due to the impact of the pandemic and the continuing cost of living crisis. So, who is left? In February, Propel revealed that Belfast-based burrito chain Boojum, which currently operates 14 sites, had appointed advisors for an equity raise in support of its expansion plans, as it looks to become the “leading burrito brand in the UK and Ireland”. That process continues but a significant stepping stone into the mainland on the back of any deal has now disappeared. And then there is US behemoth Chipotle, who is slowly, very slowly, going through the gears of its UK expansion plans. Tortilla remains the category leader here and will hope to translate that success across into Europe over the next few years. However, it will be aware that with the economies of scale and investment that TRG can bring to the table, it will now have serious competition when it comes to being the go-to brand for landlords looking to provide a point of difference in their fast-casual/grab-and-go estate mix. It should, and I am sure it will, relish the challenge, with plenty more white space for both brands to go after. Finally, a word for Davies, who has steered Barburrito through ups and downs over the past 17 years, and has always been passionate about its prospects and that of the category, and sector, as a whole. He started the UK’s burrito race, and its testament to him and his team that Barburrito are still very much in it, and now with TRG’s help, ready to up the pace.