The group, which owns the TGI Fridays UK franchise, said the new combined business intends to sell all its corporate stores to existing or new franchisees, who will then operate the stores and pay a royalty.
Hostmore currently has 87 corporate sites, while TGI Fridays has 92 existing corporate restaurants.
This transition has already commenced, with TGI Fridays having entered into agreements to sell a substantial portion of its corporate stores for in excess of $40m.
Hostmore is still working to reach binding terms regarding the proposed all-share reverse takeover of TGI Fridays for a value of £177m, which was announced back in April.
According to the group’s latest update on the transaction, a prerequisite to entering into binding terms for the acquisition had been the completion of a refinancing at closing for the combined group.
As a result of the revised business model, ongoing funding requirements of the combined group will be significantly reduced and, therefore, a new long-term debt financing package is no longer the preferred outcome.
Instead, discussions are underway with lenders and stakeholders to repay or reduce existing indebtedness using proceeds from the sale of corporate stores and/or new facilities.
Hostmore said this revised business model and financing structure, while ultimately more cost-effective and accretive to shareholder value, involves a longer timeline than the third-party refinancing process that had been commenced earlier in the year.
As a result, the acquisition, assuming terms are agreed, will likely not close by the end of Q3 2024 as previously announced.
“The board 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,” a spokesperson said.
In addition, the board is working with advisers to evaluate other potential options to secure value for the group should the acquisition not complete.
Revenue falls but EBITDA improves in half year results
Hostmore accompanied its transaction update with its half year results (H1 2024), which revealed a 10% decline in like-for-like (LFL) sales, which is in-line with the 10% decline through 26 May as announced in early June.
Sales in June were ‘variable’, according to the group, with LFL sales for the first two weeks declining by 2%, while the final two weeks declined by 20% due to the Euros football tournament and unseasonably warm weather.
These conditions continued into July, resulting in LFL sales for the first three weeks of July declining 23% and taking year-to-date LFL sales to a decline of 12% compared to the same period in 2023.
Earnings before interest, taxes, depreciation, and amortisation (EBITDA) in H1 2024 delivered a loss of £1.2m, which was £2.6mbetter than the £3.8m loss in H1 2023.
The group said it’s ‘noteworthy’ that this improvement in EBITDA was after a reduction in revenue of £9.5m for the period, and ‘underscores the positive impact of the cost reduction programme implemented in 2023 and the group’s ongoing strong operational discipline’.
As a result of trading in the period, H1 2024 ending net debt was £29.7m, up from the £25.1m reported on 31 December 2023.
The board is in discussions with various parties regarding additional financing.
