Graphite hits over 10x with Wagamama

When a 1994 vintage fund led by Graphite Capital invested £2.3m to acquire a third of the shares in an almost bankrupt London-based noodle chain nine years ago, the deal was hardly a remarkable event. However, when that same fund exited last week with a 10.2x return, the Wagamama investment became a star of the portfolio for investors in the Private Equity Partnership fund.

Investors led by Graphite invested £2.3m in October 1996 for about a third of the shares in Wagamama. They then took majority control a few years later, with a further £4m investment to take out the company’s founder.

Last week, middle-market specialist Graphite sold its controlling stake to Lion Capital in a deal that valued Wagamama at £102.5m. Together with the proceeds from a refinancing in September 2004, Graphite generated a total return of 10.2x and an IRR of 40%.

Graphite Enterprise Trust, another investor group led by Graphite, is reinvesting a substantial part of its proceeds in the new vehicle.

The deal with Lion represented a good valuation for Private Equity Partnership, which is coming towards the end of its exit cycle.

During Private Equity Partnership’s participation in the company, Wagamama has expanded rapidly from two central London outlets in 1996 to a variety of locations throughout the UK and 15 franchises in seven countries overseas. It plans to open its 50th restaurant in August in the Royal

Festival Hall, in London. Sales have grown annually by an average of 32% and Ebitda by 41% over the past three years.

Wagamama’s senior management team, led by chief executive Ian Neill, will be retaining a significant economic interest in the company. Lion Capital’s founding partner, Lyndon Lea, said: “Wagamama represents a highly attractive opportunity to acquire a well-recognised brand with a dominant position in a rapidly growing and under-penetrated niche within fast casual dining. An increasing appreciation of Japanese food reflects the growing trend towards healthier eating.”

Lion approached Graphite just over a month ago. Graphite had considered, but opted against, pursuing other approaches or a flotation plan for Wagamama.