Hutton Collins, RBS recap UK noodle bars

Graphite Capital has made 5x its money on the £63m refinancing of Wagamama in a deal funded by Hutton Collins and Royal Bank of Scotland.

In its second major realisation in three days, UK mid-market private equity house Graphite Capital has completed the £63 million (€93 million; $112 million) recapitalisation of UK noodle restaurant chain Wagamama.

The deal represents a five times return on Graphite’s investment in the chain to date, which began with a £2.5 million engagement in 1996. Since then the group has invested approximately £7 million of equity in the company, according to partner Andy Gray who led the transaction.

The refinancing package announced yesterday involves £47 million in loans provided by The Royal Bank of Scotland and a £17 million cash injection by way of a payment in kind (PIK) facility from Hutton Collins, the London-based provider of intermediate capital.

PIK instruments are speculative bonds or preferred stock that pay interest or dividends through additional bonds or preferred stock.

Of the £64 million raised, Gray said that £13 million would cover capital expenditure and overdraft facilities to expand the business. The remaining £51 million will be distributed among existing shareholders.

Upon completion of the transaction, funds advised by Graphite will hold a 70 percent stake in the company. Management will own 15 percent and the remaining 15 percent will be distributed among the new money providers, with Hutton Collins acquiring a 12 percent stake.

Hutton Collins had originally been interested in acquiring Wagamama outright before a sale to global private equity firm Apax Partners came to be seen as the most likely outcome earlier this year. However, Apax’ interest waned following “a disagreement on valuation”, according to Gray.

At that point Hutton Collins resumed talks with Graphite and the two sides agreed terms of a deal that would allow Graphite to take some money out of the business through debt whilst retaining equity going forward.

The £13 million available for future financing for the company will allow Wagamama to finance the ongoing business roll out both in the UK and potentially abroad, particularly in North America, said Gray. Wagamama has grown from two to 25 restaurants in the UK and currently has eight franchises abroad.

The deal follows Graphite’s sale last week of Maplin Electronics, a UK-based maker of electronic components and accessories, to fellow UK private equity house Montagu Private Equity for £244 million (€359 million; $437 million), which produced a 9.6x return on Graphite’s original investment.