Wagamama in sale talks with Duke Street

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The private-equity owners of Wagamama are in advanced talks to sell the noodle chain to Duke Street Capital for about £215m.

A deal would allow Lion Capital, which bought the company in 2005 for £100m, to finally exit after a mooted flotation in 2007 and two near-sales in recent years – although for less than the £250m it was seeking late last year.

The last round of talks ended in November after possible buyers failed to see the same potential Wagamama did in the US, where the company has three stores in Boston and plans to expand along the east coast.

Morgan Stanley Private Equity and Investcorp, an investment group based in Bahrain, were the only bidders, after an Aim-quoted, India-based hospitality company decided not to make an offer. Neither bidder met the £250m asking price, according to people familiar with that process.

A £215m deal would represent 14 times pre-tax profits for the year to April 2010.

Rothschild is advising Lion as it seeks a buyer. The private equity group, whose other holdings include Weetabix and the maker of Kettle crisps, offered no comment on the latest talks, first reported by Sky News. Duke Street Capital also declined to comment.

Duke Street, which focuses on consumer-facing financial and support services and the healthcare sectors, has been on the acquisition trail since the second half of last year. Wagamama, however, would be its biggest purchase in more than two years.

People close to the situation expect a deal in the next two weeks – although one cautioned that it could still fall through.

Simon Chaplin, head of restaurants at the advisory group Christie + Co, said even £215m seemed a lot of money, but argued the brand and its dominance of its subsection of the UK market could justify the price. “It’s not as safe as pizza [as far as consumer tastes go], but no one is going to give you a run for your money just yet: you’ve got the run of the market for some time”.

Wagamama has 70 venues in the UK and almost 40 abroad, most of them franchises.

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