APPLEGREEN intends to boost its stake in UK motorway service operator Welcome Break to about 70pc within about six years, and will likely ultimately own it entirely, after sealing a transformational €440m deal.
The Irish forecourt retailer has agreed to buy a 55.02pc stake in Welcome Break – which has a portfolio of 24 motorway service stations, two trunk road service areas, and 29 travel hotels under the Ramada and Days Inn brands.
They serve 85 million customers a year.
Applegreen is buying the Welcome Break stake from a fund controlled by a small Dutch bank, NIBC. The stake being acquired represents the entire holding in Welcome Break owned by the NIBC fund.
The other shareholder in Welcome Break is a London-based investment firm Arjun Infrastructure Partners.
Under the terms of the deal, Applegreen initially acquires a 55.02pc stake in Welcome Break for €361.8m in cash. But it will then sell an 8.6pc stake to Arjun for €56.5m.
As part of the deal, Applegreen will also transfer all its existing UK service area assets – including motorway service areas in Northern Ireland – to Welcome Break.
That values the assets at £120m (€135m), which will represent an equity stake in Welcome Break.
Arjun will inject £80m (€89.8m) into Welcome Break to pay back a chunk of junior debt attached to the business. It currently has net debt of £391.6m (€439.7m).
Welcome Break generated revenue of £723.4m (€812.2m) in the year to 28 January, and earnings before interest, tax, depreciation and amortisation (ebitda) of £66.4m (€74.5m).
Applegreen posted revenue of €1.4bn last year and adjusted ebitda of €39.8m.
The mechanics of the entire transaction ultimately leaves Applegreen with a 50.01pc holding in Welcome Break, with equal board representation and operational control of the business.
Applegreen’s chief financial officer Niall Dolan said that the deal effectively puts a €440m value on the Irish company’s cash and asset element of the deal. The transaction is being funded by a mixture of equity and debt.
Applegreen has pledged to raise at least €100m and up to €140m via an equity raise.
It has also secured a €300m debt facility underwritten by Natwest Markets and Lloyds. That includes a €150m revolving credit facility, and €150m term loan.
Applegreen CEO Bob Etchingham and chief operations officer Joe Barrett own a combined 52.5pc stake in the Irish forecourt retailer, which has a total of 343 sites across Ireland, the UK and the US.
They have committed to subscribing to up to €30m of shares under the equity fundraising.
But the actual amount they stump up can be scaled back at the sole discretion of the bookrunners.
Speaking to the Irish Independent, Mr Etchingham declined to say whether he and Mr Barrett could ultimately end up subscribing to much less than €30m worth of shares in Applegreen as part of the equity raise.
“It’s a matter really for the brokers,” said Mr Etchingham, adding that there had been good investor reaction to the proposed equity raise.
“We see this as clear expression of the high degree of confidence we have in the deal. Us underwriting a significant chunk of the equity raise, if that’s not required then the brokers may not call on all of it.”
However, he said that he and Mr Barrett are “almost certainly” likely to see their combined stake in Applegreen fall to below 50pc following the equity raise.
“That doesn’t trouble us. We always envisaged that as the business grows that we issue more equity, we dilute it progressively over the years,” he said.