“Brave”, “bold” and “bonkers” are just some of the words given to me in reply to the news at the weekend that Big Table Group was in advanced talks to acquire The Restaurant Group’s (TRG) leisure division, comprising mainly Frankie & Benny’s and Chiquito sites. And “bonkers” was one of the few printable answers provided. On the face of it, it is a deal that looks – on an initial glance – better for TRG. One analyst has already described the deal as potentially transformational for TRG’s “equity story”, and the company’s share price today responded favourably to news of the disposal of a part of its business that had been a continuing drag on the Wagamama, Brunning & Price and concessions division. It may even keep the group’s activist shareholders happy for a while. But if you look past the initial surprise and scepticism around the future of the acquired brands, under the shrewd leadership of Mike Tye and Alan Morgan – chairman and chief executive of the Big Table Group, respectively – could it also be a transformational deal for the Bella Italia and Las Iguanas operator in time?

“Imagine paying someone £7.5m to take your business away”, was one message I received this morning after TRG confirmed it had entered into an agreement for the sale of its leisure business, comprising 75 trading sites and associated restaurant and management team employees, to Big Table Group. Plus £1. Over the past six months, as TRG came under pressure from shareholders such as the Hong Kong-based Oasis Management, the talk has been about whether it would dispose of one of its “crown jewels” – either Wagamama or pub business Brunning & Price. The need to sell its leisure division was clear, but the feeling was a buyer would be very hard to find, especially in a market where the casual dining pound was under pressure. So, hats off to TRG chief executive Andy Hornby and his team for getting it out of the door. Not that the business hasn’t put significant effort into trying to turn around its leisure brands under managing director Jon Knight, who I understand will stay with TRG to oversee its concessions business. But it must have come to a conclusion a while back that in the case of the once 300-plus strong Frankie & Benny’s, no matter what they tried, the brand had limited consumer appeal. Last Wednesday, TRG said that total year-to-date like-for-like sales for Wagamama (VAT adjusted) were up 9%, with dine-in like-for-like sales (VAT adjusted) up 14%. Delivery and takeaway like-for-like sales for the brand were down 8%. Pubs like-for-likes sales for the year to date were up 10%, with concessions up 31%, but its leisure division was down 1%.

The leisure division’s disposal will now enable management to focus its time on its remaining estate (Wagamama, pubs and concessions), which has shown a more robust performance, with improving like-for-like sales and profitability. In short, it simplifies the group and improves its balance sheet (a lot of lease liabilities will be taken off the balance sheet for one) by improving cash flow, limiting the ongoing drag to revenues and profitability and enhancing margins. As Hornby said this morning: “A sale of our leisure business significantly accelerates our medium-term strategic plans to increase adjusted Ebitda margins and reduce leverage.” It can now focus on pushing Wagamama up to and beyond 200 sites, further into the US – with good consumer traction being seen in recent openings there, especially in Tampa – and into new international markets (it recently signed a new territory agreement to open seven sites in India from FY24 onwards). It can also return to the expansion trail with Brunning & Price, which has taken a back seat over the past 18 months, with plans to open up to three sites a year and “long-term potential for 120-140 sites”.

Despite coming under pressure, Hornby continues to come up with answers to the questions being set by Oasis and co, and the strategy he has laid out is, judging by recent results, delivering. The concern for Hornby and the TRG board is that the share price has not pushed up more on the news (currently up 5.6% at 50.2p) and that Oasis has also recently strengthened its shareholding after acquiring some shares from a previous backer of the company’s strategy, Columbia Threadneedle. On news earlier this month that TRG chairman Ken Hanna was to step down, Dan Wosner, head of Europe at Oasis, which is now thought to hold a circa 18% stake in TRG, said he was “unsurprised” by Hanna’s resignation. “We recently voted against the re-election of the chairman at the annual general meeting,” he said. “The status quo is unacceptable.” Will another disposal be needed to placate them further? Lazard & Co advised on the leisure division deal, and it is thought it has done some work on looking into a possible sale of Brunning & Price. It is understood it came to the conclusion with TRG that the sale of a pub business now would generate a figure below what they see as fair value, which is believed to be around £220m. So, perhaps all eyes will now turn to the group’s concessions business, a sale of which, with all the moving parts involved, will of course be more complicated and delicate but would interest the likes of SSP, Compass and HMSHost. 

Speaking to Propel off the back of TRG’s interim results last week, Hornby said “most of the heavy lifting has now been done” in its leisure division, leaving it with 76 “high quality” sites. Big Table Group is getting a business that considerable work has been put into, one that generated circa £160m in revenue in FY22, and £84m in the six months to 2 July 2023. In the eight weeks to the 27 August, the leisure division’s total like-for-like sales were ahead by 6%. However, half-year Ebitda for the half year was minus £800,000. It will also come with an issue that the Epiris-backed business has already grappled with some of its own brands’ relevancy, particularly Café Rouge and Bella Italia. The acquisition of the division, which also includes the brands Firejacks, Coast to Coast, Filling Station and EST alongside Frankie & Benny’s and Chiquito, takes The Big Table Group to operating more than 220 restaurants across the UK. It said that the make-up of the division as a whole complements its existing portfolio, “operating across both the family and experiential dining markets”. The deal is expected to complete at the end of October 2023. Morgan said: “Creating, developing and acquiring brands that complement our existing portfolio while offering widespread consumer appeal is a fundamental part of our growth strategy. This exciting acquisition forms part of that strategy, and we are delighted to be welcoming this new team into The Big Table Group.” The question will be how much “widespread consumer appeal” does those ex-TRG brands still have?

Many will see this as a site play. If TRG couldn’t turn Frankie & Benny’s around, will Big Table Group even try? It will be aware that the remaining Frankie’s sites were the best (or should that be least bad) performing, and so still have some consumer demand. Big Table Group will also take confidence from the success it is already having with re-shaping the likes of Cafe Rouge and Bella Italia, and the ongoing success of Las Iguanas. It will know through the workhorse brand that is Bella that retail and leisure parks are not dead for the right brands – approximately half the acquired TRG sites are on leisure or retail parks. Last September, Big Table Group acquired the then nine-strong Banana Tree, the fast-casual pan-Asian brand, for a total consideration of £8.6m – now nearly paid for by its deal with TRG. Big Table Group has already converted six Café Rouge sites to the brand, with a further three in Henley, Greenwich and Bath to follow before the end of the year. It would be no surprise to see that brand and Las Iguanas do most of the initial heavy lifting when it comes to possible conversions from TRG’s former leisure division. Big Table Group may also feel that Chiquito, in a part of the market – TexMex – now under-served, still has legs, especially where it is based close to one of its existing Las Iguanas sites. Propel understands that it has recently appointed Johanna Selin, formerly of Marks & Spencer, Wagamama, Pret and Coco Di Mama, to the new role of head of new concept development. Selin helped Wagamama develop its Mamago grab-and-go concept, and it is tempting to think that further evolved formats, such as the group’s now nationwide pasta delivery brand Super Nonna, could be on the cards. 

Morgan tells me: “We believe this division complements our existing portfolio very well, operating across both the family and experiential dining markets, and we will be able to drive strong improvements and synergies in multiple areas. The priority at this early stage is to support the business in every possible way, and our immediate focus is on welcoming this new team into the Big Table Group, ensuring a smooth transition and delivering a great Christmas period. We will look at the opportunities that the Big Table Group has to provide additional support to the brands, as well as exploring how some of the sites may fit into our existing portfolio in time. And, as always, we will review all the properties to understand best fit across the portfolio, to make sure we have the right offering to suit each location.”

In July, Morgan told Propel that Big Table Group is one of the best capitalised restaurant groups in the UK, and it continued to review targets for acquisition. At the same time, the company reported an “encouraging” performance in the first half of its current financial year to April 2023, with sales up 9% year-on-year (excluding prior year VAT benefit). It said trading Ebitda is “well-ahead of the prior year and ahead of expectations, even after accounting for significant additional energy costs”. This, alongside confidence already buoyed by the success of adding Banana Tree into its brand mix, has allowed the business to take a calculated gamble on taking on these new sites. One question will be whether it will spur on others – Azzurri, Cote and PizzaExpress – to do the same. Will the latter take another look at Prezzo, for example? I understand that the Piper-backed Turtle Bay explored the possibility of taking in new investment earlier this summer to become a platform for multiple brands. The deal for the TRG leisure division should also provide some confidence across the wider market. The speed at which branded portfolios need to be refreshed has never been greater. You wonder, then, whether Big Table Group will need to add at least one further smaller growth brand – like Banana Tree – to its portfolio to make the most of this deal. Rumour is the business would like to add a pizza brand to its portfolio, and while Yard Sale Pizza is currently exploring its options, perhaps Big Table and Epiris should be more ambitious and go after Pizza Pilgrims. Then, perhaps, we would be talking about a transformational deal for not only TRG, but Big Table also.