8-K: The ONE Group Hospitality Completes Acquisition of Benihana Owner for $365 Million

The ONE Group Hospitality, Inc. has finalized its acquisition of Safflower Holdings Corp., the owner of Benihana, for $365 million in cash.

Summary

• The ONE Group Hospitality, Inc. has completed its acquisition of Safflower Holdings Corp., the owner of Benihana, for $365 million in cash.
• The acquisition includes most of the Benihana restaurants and all of the RA Sushi restaurants in the United States, as well as Benihana franchising locations in the U.S., Latin America (excluding Mexico), and the Caribbean.
• The ONE Group financed the acquisition through a $350 million senior secured term loan facility and a $40 million senior secured revolving credit facility.
• The term loan facility bears interest at a margin of 6.5% per annum for SOFR borrowings and 5.5% per annum for base rate borrowings, maturing on April 30, 2029.
• The revolving facility bears interest at a margin ranging from 5.5% to 6.0% per annum for SOFR borrowings and 4.5% to 5.0% for base rate borrowings, maturing fifty-four months after the loan agreement date.
• The company also issued preferred stock and warrants to HPC III Kaizen LP and HPS Investment Partners, LLC as part of the financing.
• James Chambers and Scott Ross have been appointed to The ONE Group's Board of Directors.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting the completion of a strategic acquisition and the potential for future growth. However, the high debt load and potential dilution of existing shareholders temper the overall sentiment.

Positives

• The acquisition diversifies The ONE Group's portfolio with the addition of Benihana and RA Sushi brands.
• The acquisition provides additional growth and development opportunities for the company.
• The company has secured financing for the acquisition through a new credit agreement.

Negatives

• The company has incurred a significant amount of debt to finance the acquisition.
• The company has issued preferred stock and warrants, which may dilute existing shareholders.

Risks

• The company faces risks associated with integrating the new restaurants into its operations.
• The company may not be able to capture anticipated synergies from the acquisition.
• The company may face challenges in managing the increased debt load.

Future Outlook

The ONE Group anticipates additional growth and development opportunities from the acquisition and aims to strengthen its portfolio of experiential restaurant concepts.

Management Comments

• We are delighted to have completed the acquisition and look forward to this next chapter for our Company, said Emanuel Manny Hilario, President and Chief Executive Officer of The ONE Group.
• Benihana provides us with additional growth and development opportunities and supports our broader strategy to fortify and diversify our leading portfolio of best-in-class experiential VIBE restaurant concepts.
• Most importantly, Id like to welcome our nearly 6,500 new Benihana teammates and our new Board Members, Scott Ross and James Chambers.

Industry Context

This acquisition reflects a trend in the hospitality industry towards consolidation and diversification of restaurant brands to capture a wider customer base and enhance growth opportunities.

Comparison to Industry Standards

• The acquisition of Benihana by The ONE Group is a significant move in the restaurant industry, comparable to other large-scale acquisitions aimed at expanding market presence and diversifying revenue streams.
• The financing structure, involving a combination of term loans and revolving credit facilities, is a common approach for acquisitions of this size in the hospitality sector.
• The interest rates and terms of the credit facilities are within the typical range for similar transactions, although the specific rates are influenced by the creditworthiness of The ONE Group and prevailing market conditions.
• The appointment of new board members from Hill Path Capital LP reflects the involvement of private equity firms in the restaurant industry, which is a common trend in recent years.
• Comparable companies that have undertaken similar acquisitions include Darden Restaurants (DRI) acquiring Cheddar's Scratch Kitchen and Restaurant Brands International (QSR) acquiring Popeyes Louisiana Kitchen, each of which involved significant debt financing and integration challenges.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders may experience dilution due to the issuance of preferred stock and warrants.
• Employees of Benihana and RA Sushi will become part of The ONE Group.
• Customers of Benihana and RA Sushi will see changes as the brands are integrated into The ONE Group.

Next Steps

• The company will host a conference call and webcast on May 7, 2024, to discuss first quarter 2024 financial results.
• The company will file financial statements of business acquired and pro forma financial information by July 17, 2024.

Key Dates

Keywords

acquisition, Benihana, The ONE Group, Safflower Holdings Corp, RA Sushi, term loan, revolving credit, financing, preferred stock, warrants, hospitality, restaurants