If TGI Fridays’ agreement to be acquired by U.K.-based franchisee Hostmore plc goes through, it will mark one of the rare instances in which a restaurant operator buys its parent brand.
The all-stock takeover, valued at about $220 million, is probably not the exit TGI Fridays’ owner TriArtisan Capital Advisors had in mind when it bought the casual-dining chain for $800 million in 2014, said John Gordon, a restaurant finance expert and founder of Pacific Management Consulting Group.
But it accomplishes TriArtisan’s long-running efforts to sell the brand, four years after a deal to take it public by merging with a special purpose acquisition company fell apart.
And it has some unique benefits for TGI Fridays—namely that it will be joining forces with a like-minded operator in Hostmore at a time when both companies are struggling.
“They’re working with kindred folks, right?” Gordon said. “It gets like people working together on like tasks.”
The combined company would have nearly 600 restaurants in 44 countries and would trade publicly on the London Stock Exchange, which would also give it more scale and capital than each party has on its own.
“They both seem to be looking for ways to turn things around,” said Ab Igram, executive director of the Tariq Farid Franchise Institute at Babson College in Wellesley, Massachusetts. “Both are looking for a way to say, ‘Combined, we can share some synergies.’”
The newly formed company would remain headquartered in Dallas under TGI Fridays’ existing leadership, including CEO Weldon Spangler and CFO Nik Rupp. Hostmore CEO Julie McEwan and CFO Matthew Bibby would maintain their roles atop the U.K. business.
Current Hostmore Chairman Stephen Welker would serve as chairman of the combined company until its annual meeting in 2025, at which point he would retire and TriArtisan co-founder Rohit Manocha would become the new chairman.
TriArtisan would control 64% of the company's shares, with Hostmore holding the rest.
Twin turnarounds
After years of sales declines, Fridays’ U.S.-based arm has been working to revitalize itself as the casual-dining trend-setter it once was. It has refreshed its menu and bar program with trendy items like sushi and hard seltzer and is leaning into delivery and takeout.
But it also closed nearly 60 U.S. locations last year—a full fifth of the system—and domestic sales shrunk by 18%, according to Technomic data.
Hostmore, meanwhile, has also been dealing with sales and traffic problems, which it has blamed on softening demand for casual dining. Its revenue in the second half of last year was flat year over year, according to a securities filing, and in the first quarter of 2024, revenue was down 7%. Its stock price has fallen by about 20% year to date.
The franchisee’s focus has been on reducing costs and paying down debt. It has also worked to improve the customer experience—an effort it says has begun to bear fruit. And it’s looking to drive growth with its loyalty app and email marketing.
Joining forces will give Fridays more resources to pursue those efforts. Manocha noted in a statement that the deal has a “compelling and highly complementary strategic logic to it.”
“A combined group would stand to gain from our focused efforts with the benefit of greater combined scale, efficiencies and flexibility,” he said.
More company stores
The deal would change the company’s makeup in at least one key area: the ratio of franchised to company-operated stores.
TGI Fridays currently operates 100 of its 504 total stores, or about 20%. In January, it announced that it had sold eight company-owned stores to former CEO Ray Blanchette, indicating a desire to shift even more of its domestic business to franchising.
Merging with Hostmore would take it in the opposite direction, adding another 89 company-operated stores to its ledger and increasing the share of owned stores in the portfolio to about 32%. That means TGI Fridays will be more exposed to the costs of running restaurants in a difficult environment.
“You’re less insulated to fluctuations and challenges at a store level when you run company stores,” Igram said.
But those stores also generate more revenue and tend to be more profitable than franchised ones, which may send just 5% to 6% of their sales to the franchisor as a royalty.
“I think they need to keep the company stores that they have, because once they get the operations right, they can take out more free cash flow from the company stores to service their debt,” Gordon said. From there, the brand could continue franchising on top of that to fuel growth at a lower cost, he said.
While the companies did not indicate whether anything will change on the ground following a merger, franchisees should pay close attention to Fridays' strategy going forward, Igram said.
“See how it works out, what the company does and how it affects the unit economics of the franchisees,” he said. “The proof is in the pudding.”