8-K: The ONE Group Hospitality to Acquire Benihana in $365 Million Deal, Expanding Experiential Dining Portfolio

The ONE Group Hospitality, Inc. will acquire Safflower Holdings Corp., the owner of Benihana and RA Sushi, for $365 million, creating a larger, more diversified experiential dining platform.

Summary

• The ONE Group Hospitality, Inc. is set to acquire Safflower Holdings Corp., the owner of Benihana and RA Sushi, for $365 million.
• The acquisition will be financed through a combination of $160 million in preferred equity and a portion of a new $390 million term loan and credit facility.
• The combined entity will have a global footprint of 168 venues, including full-service entertainment and grill restaurants.
• Benihana operates 88 company-owned restaurants and franchises or licenses an additional 17 venues in the Americas.
• The acquisition is expected to add approximately $575 million in annualized system-wide revenue and $70 million in annual run-rate EBITDA before synergies.
• The Company estimates $20 million in annual synergies, bringing the pro forma annualized run-rate EBITDA with synergies to more than $135 million.
• The transaction is expected to be immediately accretive to earnings per diluted share.
• The Company expects that it will take 24 months to realize synergies post-closing.

Sentiment

Score: 8

Explanation: The document is very positive, highlighting the strategic benefits of the acquisition, the expected financial improvements, and the creation of a larger, more diversified company. The tone is optimistic and forward-looking, suggesting a strong belief in the success of the transaction.

Positives

• The acquisition creates a scaled platform and diversifies The ONE Group's portfolio.
• The combined business is expected to generate meaningful free cash flow, enabling debt reduction and shareholder-friendly capital allocation.
• The transaction is expected to be immediately accretive to earnings per diluted share.
• The acquisition leverages Benihana's existing franchise platform for additional asset-light development opportunities.
• The combined business will have a global footprint of 168 venues.

Negatives

• The Company expects that it will take 24 months to realize synergies post-closing.

Risks

• The Company may not be able to integrate the new restaurants into its operations without disruptions.
• The Company may not be able to capture the anticipated synergies.
• The Company may not be able to open new restaurants and food and beverage locations in current and additional markets, grow and manage growth profitably, maintain relationships with suppliers and obtain adequate supply of products and retain employees.
• Factors beyond the Companys control may affect the number and timing of new restaurant openings.
• The Company may not be able to successfully improve performance and cost, realize the benefits of its marketing efforts and achieve improved results as it focuses on developing new management and license deals.
• Changes in applicable laws or regulations may impact the Company.
• The ONE Group may be adversely affected by other economic, business, and/or competitive factors.
• The risk that the acquisition does not close.

Future Outlook

The combined business will generate meaningful free cash flow enabling debt reduction and shareholder friendly capital allocation to drive long-term value for shareholders. The transaction is expected to be immediately accretive to earnings per diluted share.

Management Comments

• We are delighted to welcome Benihana, an American cultural icon with timeless appeal that transcends generations and offers unparalleled guest experiences, to The ONE Group family, said Emanuel Manny Hilario, President and CEO of The ONE Group.
• The strategic acquisition of a one-of-a-kind restaurant platform with a compelling financial profile supports our broader strategy to fortify and diversify our leading portfolio of best-in-class experiential VIBE restaurant concepts.
• With Benihana joining The ONE Groups platform, our combined annualized EBITDA enhances our ability to continue to fully fund our expansion while delivering meaningful free cash flow enabling debt reduction and shareholder friendly capital allocation to drive long-term value for shareholders.

Industry Context

This acquisition reflects a trend in the restaurant industry towards consolidation and the creation of larger, more diversified platforms with multiple brands. It also highlights the importance of experiential dining in attracting and retaining customers.

Comparison to Industry Standards

• The ONE Group's acquisition of Benihana is a significant move in the restaurant industry, creating a larger entity with a diverse portfolio of brands.
• Comparable companies in the full-service restaurant space include Darden Restaurants (DRI) and Texas Roadhouse (TXRH), which have also built large portfolios through acquisitions and organic growth.
• The transaction is expected to be immediately accretive to earnings per diluted share, which is a positive sign for investors.
• The combined company's pro forma annualized run-rate EBITDA with synergies of more than $135 million is a significant figure, placing it among the larger players in the industry.
• The focus on experiential dining aligns with current consumer trends, which should help the combined company maintain and grow its customer base.

Management Changes

Stakeholder Impact

• Shareholders are expected to benefit from the increased free cash flow, debt reduction, and shareholder-friendly capital allocation.
• Employees of both The ONE Group and Benihana will be part of a larger, more diversified company.
• Customers will have access to a wider range of experiential dining options.
• Suppliers will have the opportunity to work with a larger, more established company.
• Creditors will be repaid with the free cash flow generated by the combined business.

Next Steps

• The transaction is expected to close by the end of the second quarter of 2024.
• The Company will work to integrate Benihana into its operations.
• The Company will focus on capturing the anticipated synergies.
• The Company will continue to expand its footprint and develop new management and license deals.

Key Dates

Keywords

acquisition, Benihana, The ONE Group, RA Sushi, experiential dining, restaurant, EBITDA, synergies, preferred equity, term loan, credit facility