Lion looks to private bidders for Wagamama

Lion Capital, the European buyout firm, has called off a planned listing for Japanese restaurant chain Wagamama because a trade sale will fetch a better price as it looks to exit after two years ownership.

European buyout firm Lion Capital has called off a planned initial public offering of Japanese noodle chain Wagamama, according to someone close to the sale.

Lion Capital had been planning to sell the company on the public markets for £225 million (€323 million, $458 million), she said.

However, she said: “The trade sale will fetch a better price, and they have several bidders lined up.”

Private equity firms and trade groups are interested in the company, she said. Lion Capital owns 77.5 percent of the dining chain, while management owns 22.5 percent. The buyout firm and managers acquired Wagamama in June 2005 from UK mid-market firm Graphite Capital for £102.5 million, including debt.

Merchant bank Rothschild is handling the sale.

Given the credit squeeze on the back of liquidity problems in the credit markets, financial sponsors may struggle to compete with trade bidders in the sector due to lack of leverage and given the relatively high bid price.

Most successful announced bids by buyout firms in the UK mid-market over the last month have been at the £30 million to £110 million level, including Graphite Capital’s acquisitions during the last week of the snack chain West Cornwall Pasty Company and of toothpaste tube manufacturer Betts Global.

However, in recent auctions above £200 million in the UK mid-market, trade buyers have won. Towergate bought rival IT company Open International from UK firm Montagu Private Equity earlier this month for £276 million. The bid was widely seen as an example of how the balance of power had swung back to trade buyers at this end of the market.

Lion’s planned exit after two years will most probably close before April 2008 when the UK scraps the 10 percent taper relief on capital gains enjoyed by buyout executives on their carried interest. After this period the UK government will tax capital gains at a flat rate of 18 percent.