London listed restaurant group Tortilla has snapped up rival Chilango, as it seeks to reap the rewards of office workers returning to London.
The Mexican fast food chain dished out £2.75m to buy Chilango from the investment firm RD Capital Partners , it announced on Monday.
Chilango’s estate of eight UK sites – six of which are located in London’s Zone 1- will boost Tortilla’s foothold in the heart of the capital.
The Chilango brand will be retained at “certain locations” and through delivery platforms in “a number of” Tortilla sites.
Chilango, which crowdsourced £5.9m from around 1,500 small investors through so-called “burrito bonds”, had flailed with high operational costs and climbing debts – even before the Covid pandemic battered the hospitality sector.
After collapsing into administration, the beleaguered company was bought by RDCP in August 2020, with 130 jobs rescued at the time.
Now, Chilango provides Tortilla with a “fantastic value-for-money proposition”, according to Tortilla CEO Richard Morris.
The company feeds into a consumer trend for “healthy, customisable food” with premium locations in London and Manchester, Morris added.
“This acquisition accelerates our ambitious plans to further expand the Tortilla brand,” he added.
After making its £70m debut on the London Stock Exchange’s FTSE AIM All-Share market in October last year, Tortilla set out its intentions to open 45 sites over the next five years.
However, Chilango’s estate would be seen as an addition to the company’s target of 45 sites, Morris explained.
Tortilla anticipates the deal will contribute around £0.1m in EBITDA to the group for the rest of the 2022 financial year, with EBITDA of around £1m for the 2023 financial year.
For the full year to 26 December 2021, Chilango posted sales of £7.3m and a loss before tax of £0.2m.
With both brands offering a similar menu of burritos and tacos for consumers on the go, the group said there were “several synergy opportunities.”
This was “including but not limited to leveraging the Group’s favourable buying power and 5,500sq ft central production kitchen in Tottenham Hale.”
Speaking to CityA.M. last month, Morris said delivery was a “key part” of the company’s future, particularly in the capital.
“We realised that in London there are opportunities to further saturate the city with Tortilla units with delivery kitchens,” he said.
“With more sites, the quicker and closer you are to a postcode of consumers, you can get tastier and warmer food into the hands of customers.”
Some £0.25m of the total cash consideration paid will be paid via an earn-out following the satisfaction of certain criteria relating to the leases. This process is set to take around six months.
Tortilla’s share price was down more than six per cent on Monday afternoon.