Private equity dines out

The UK restaurant sector has seen more than £1 billion in private equity transactions in the last month. Private equity’s appetite for eating out assets is, as yet, undiminished. By Robert Venes.

Last week, Cinven had its £900 million (€1.33 billion; $1.67 billion) offer for Gondola Holdings, the listed owner of Pizza Express, ASK and Zizzi Restaurant chains in the UK and Ireland, accepted by the group’s board of directors.
The Cinven deal follows a busy period in the food and restaurant sector for private equity firms, including PPM Capital’s acquisition of Paramount Restaurants, owner of the Chez Gérard, Bertorelli and Caffè Uno brands, in the same week; and Risk Capital Partners’ purchase of the Patisserie Valerie chain of eateries in late September.
PPM Capital, which is understood to be in the process of spinning out from parent company Prudential, paid £107.5 million to acquire Paramount, which operates 77 restaurants throughout the UK under the Chez Gérard, Bertorelli, Caffè Uno, Livebait, Café Fish and Brasserie Chez Gérard brands. Debt facilities were provided by the Royal Bank of Scotland, Barclays and HSBC.
Cinven has offered 415 pence for each Gondola share, valuing the business at £559 million and representing a premium of almost 30 percent to the company’s flotation price of 320 pence per share in November 2005.
Gondola operates 319 Pizza Express, 100 ASK and 81 Zizzi Restaurants across the UK and Republic of Ireland. According to a company statement, there is scope for expanding the three brands by at least another 300 restaurants, having already opened 26 sites in 2006.
If successful, the take-private bid will see private equity firms TDR Capital and Capricorn Ventures exit their combined 48 percent stake in Gondola, having acquired the Pizza Express chain in a £280 million take-private in May 2003 before buying the ASK Group, which includes the Zizzi brand, in May 2004.
The Pizza Express transaction also generated interest from both ABN AMRO Capital, which owns French restaurant chain Score Groupe, and Luke Johnson’s Risk Capital Partners.

Risk Capital Partners will roll out the brand across the UK

The latter acquired an 80 percent stake in Patisserie Valerie for an undisclosed sum. Patisserie Valerie, a chain of upmarket patisseries in London, has revenues of more than £8 million and opened a flagship branch Spitalfields market late last year. According to Mark Farrer-Brown, a partner at Risk Capital Partners, the firm has plans to roll out across the UK: “We’ll be looking at both organic growth and acquisitions but it’s all about growing the business, which is something we have a lot of experience of in this sector.”
That experience includes Risk Capital Partners’ founder, Luke Johnson’s position of chairman of Pizza Express until 1999, having organised its acquisition in 1992 before floating the business on the stock exchange at 40 pence. When he left his position, the company’s share price was more than 800 pence and the business had a market capitalisation of £500 million.
Last year, Risk Capital Partners sold its interest in Signature Restaurants, a 2002 public-to-private and the owner of The Ivy, Caprice and Strada restaurants, to clothing entrepreneur Richard Caring, generating a tenfold return on investment.
The firm currently has an investment in Giraffe, a restaurant chain with 12 sites within the M25 region around London.
While Farrer-Brown says that competition for restaurant assets comes from both trade and financial buyers, the lure for private equity firms is likely to continue in the future: “You have to invest in the right management and the strong brands, but if you get it right, these can be highly profitable sites. You’re buying into the growth of eating out and, as a nation, we are going to continue to do that.”
Farrer-Brown cites national statistics which report growth in the UK restaurant sector of 9.1 percent per year from 1982 to 2004, which accounts for 3.6 percent growth in real terms: “In 1990, eating out represented just 27 percent of total food expenditure, but had risen to 35 percent by 2004. According to estimates, that will grow to 50 percent of total food expenditure by 2025.”
In which case, private equity firms will be expecting the UK restaurant sector to be providing more than just a hot meal for the foreseeable future.