Fortress Investment Group’s offer for Loungers meets resistance

Two of the biggest shareholders in Loungers are rebelling against Fortress Investment Group’s proposed takover of the café-bar group.
Fortress, the US private equity firm majority-owned by Abu Dhabi’s Mubadala, has made an offer of 310p a share, representing a 30 per cent premium to Loungers’ closing price on Wednesday, valuing the company at about £338 million.
While the group’s directors have recommended that shareholders vote in favour of the deal, Mark Slater, whose firm Slater Investments owns a 10.4 per cent stake in Loungers, said he will reject the takeover, arguing that “it’s the wrong time to be trying to sell a very good business of this kind”.
Dan Harlow, head of UK Equity at AXA Investment Managers, who also intends to vote against the deal, echoed Slater’s point, saying that managament’s frustration with the share price “is no excuse to throw the towel in at what we consider could be the darkest hour”.
To see the company exit public markets now is “galling”, Harlow said, arguing that the offer “appears to be another opportunistically priced bid”.
Loungers, which trades under the Lounge, Cosy Club and Brightside brands, was founded in 2002 by three friends — Alex Reilley, his school friend Jake Bishop and Dave Reid, a restaurateur — opening their first Lounge in 2002 in Bristol. It now operates 280 sites and is on track to finish the present financial year with 292.
Fortress believes that taking Loungers private would address “the performance and liquidity challenges” of the group’s share price, which has “failed to adequately reflect Loungers’ positive business performance to date”. Shares in Loungers, which listed on London’s junior stock market in April 2019 at 200p, rose 28 per cent to a record high of 305p in afternoon trading before finishing the day up 27.7 per cent, or 66p, at 304p.
Reilley, the chairman of Loungers, who has a 6.7 per cent stake in the business according to Factset, said he saw Fortress “as being an ideal partner to help us take Loungers into the next phase of its growth journey” and believes the deal is a “compelling proposition for all our stakeholders”.
Reilley, along with Bishop, who has a 6.3 per cent stake, are keeping the majority of their money in the business. “Loungers has come a long way since we opened our first site in Bristol in 2002 and we are hugely proud of the jobs we’ve created, the positive impact we’ve made on the UK’s high streets and the outstanding hospitality our amazing teams have provided since then,” he said.
Domnall Tait, managing director at the New-York based Fortress, said: “Fortress is pleased to present this offer for Loungers, a company we believe holds a strong and differentiated position in its industry.”
News of the takeover was revealed alongside Loungers’ results for the six months to October 6, showing that revenues had jumped 19.2 per cent to £178.3 million and pre-tax profit leapt 53.8 per cent to £5.95 million thanks to a 4.7 per cent increase in like-for-like sales over the period. Momentum has continued into the second half, with like-for-like sales up 3.9 per cent in the first seven weeks of the third quarter.
From cinemas to pubs, Fortress has placed a big bet on the UK consumer in the past few years. The investment firm’s proposed purchase of Loungers follows its acquisition of Curzon, the arthouse cinema chain, earlier this month.
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Joshua Pack, co-chief executive and managing partner at Fortress, said the UK remained a “very attractive investment environment” for the company, adding that it would continue to “explore opportunities where we can help strong management teams to grow their business”.
That’s not all it bought this year. In April Fortress snapped up Poundstretcher, one of Britain’s first discounters, including its 322 shops, of which about 60 trade under the Bargain Buys name. That same month Majestic, which Fortress gobbled up for £95 million in 2019, bought Vagabond Wines out of administration, saving nine of the pour-your-own wine bars from closure.
One of its biggest bets has been Punch Pubs & Co, which Fortress bought from Patron Capital Partners for an estimated £1 billion in 2021, the same year that it unsuccessfully attempted to buy Morrisons.