With new plans to sell all remaining corporate restaurants, United Kingdom franchisee Hostmore’s deal to acquire TGI Fridays likely won’t close in the third quarter as planned.
Hostmore, which trades on the London Stock Exchange, said in a regulatory filing August 6 that the business combination agreement announced in April to purchase franchisor TGI Fridays in a deal valued at $220 million is delayed. Hostmore, which is the largest TGI Fridays franchisee, didn’t provide a new timeline.
In a notable change from the original deal, Hostmore and TGI Fridays intend to transition to an asset-light, fully franchised model, with TGI Fridays selling its 92 corporate stores and Hostmore offloading its 87 locations to new or existing franchisees. Because of the new deal structure, the completion of a long-term debt financing package “is no longer the preferred outcome,” Hostmore said. Instead, the company expects to use proceeds from the sale of those corporate stores to pay down debt.
TGI Fridays, the filing noted, already has agreements to sell a “substantial portion” of its company-owned units for more than $40 million. TGI Fridays in January sold eight corporate locations to former CEO Ray Blanchette and closed 36 restaurants it described as “underperforming.”
The transition to a fully franchised model will be more cost-effective and better for shareholder value, Hostmore said in the filing, but will take longer to complete than the original debt refinancing plan.
Average sales for TGI Fridays’ company stores in the U.S. hit $2.61 million in 2023, according to Item 19 of its franchise disclosure document. Franchise locations reported average sales of $2.58 million.
Hostmore and TGI Fridays “continue to work closely and collaboratively towards a positive result, as the boards of both businesses believe that the acquisition is the optimal outcome for both sets of shareholders,” Hostmore said. The company, however, did note it is working with advisers “to evaluate other potential options to secure value” should the acquisition not be completed.
Hostmore, established in 2021 and led since May 2023 by CEO Julie McEwan, reported a 10 percent decline in same-store sales for the first half of the year. It attributed part of that decline in the second half of June to the Euros football tournament and unseasonably warm weather, which it said had a similar effect on casual dining competitors.
TriArtisan Capital Advisors, the private equity firm that’s owned TGI Fridays since 2014, has worked to sell the company since 2020. That’s when a deal with Allegro Merger Corp. to take the casual dining chain public via a special purpose acquisition company was terminated.