Benihana One Group Hospitality
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The One Group Hospitality acquires Benihana

Introduction

The One Group Hospitality announced earlier this week that they have acquired the emblematic restaurant chain Benihana along with RA Sushi. Benihana is a Japanese-influenced restaurant chain that was founded in 1964 and was the first restaurant to introduce the teppanyaki concept in the United States. Currently, they own 69 restaurants, 12 franchises in Latin America and the Caribbean, and 5 Co-Branded Arenas/Stadiums. Additionally, the deal includes RA Sushi (a chain similar to Kona Grill – which seems likely to be merged), of which they have 19 restaurants.

The deal has been closed at $365 million (EV) to be paid in cash, for which STKS has issued $350 million in long-term debt at SOFR + 6.50% and preferred equity ($160 million) PIK with an initial 13% scalable to 14.5%, 15.5%… as well as warrants (5.33% of the company market cap at $0 – special conditions for the PE – and others at $10) – we will delve into this later –

Benihana will add $70 million of EBITDA to the $47 million of One Group Hospitality. Furthermore, it is expected that around $20 million of synergies will be achieved in the next two years (mainly from supplier synergies – especially in Texas, Florida, Arizona, Indiana, and northeastern states).

Transaction is expected to close by the end of the 2Q24

A bit of context

Benihana was a public company until 2012 – ticket $BNHN – when the PE firm Angelo, Gordon & Co.’s acquired them by $296MM. At that time, there was 62 Benihana restaurants, eight Haru sushi restaurants and 25 RA Sushi restaurants. In addition, 16 franchised Benihana restaurants were operating in the US and LatAm – Haru Sushi is not part of this operation. As far as we know, it was sold independently in 2019. Also, Benihana reached 101 restaurant in 2019 (up from 78 in 2012) and has closed 15 in the last 4 years.

Angelo Gordon & Co had been exploring the sale of Benihana since July 2023, following the success of CAVA’s IPO and increasing interest in the restaurant industry. However, according to Reuters, they were seeking a valuation higher than $600 million EV, and ultimately, they ended up selling it for $365 million.

Note: Angelo Gordon & Co was acquired by Texas Pacific Group (TPG – one of the largest PE firms in the world) in 2023 by $2.7bn

 

The market’s reaction to the deal has been very positive, rising 40% in two days.

Our goal today is to analyse the economics of the deal (after reviewing all available materials), calculate the interest payments, Preferred shares redemption, and FCF model before formulating an opinion on it.

On one hand, the price paid is very attractive, and the potential synergies are evident. However, on the other hand, the deal’s structure poses some risks that we have been analyzing in detail under several scenarios, as they need to be taken into account

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