Who is next on the block in the hunt for restaurant acquisitions?

Yo! Sushi

What does 2015 have in store in terms of restaurant and bar transactions? Business advisory specialist BDO gives its verdict.

“Our view is that deal activity will continue, if not increase. At the time of writing there are a number of deals rumoured to be either imminent or on the blocks in the near future.

“The UK arm of TGI Friday’s has attracted significant interest, and the likes of Ed’s Easy Diner, Gordon Ramsay, Las Iguanas and Yo! Sushi (pictured) are all reported to have appointed advisers with a view to a potential sale. In addition, the likes of Bill’s, Abokado, Chaophraya, Honest Burger, Red’s True BBQ and Loungers continue to be linked with potential sale or further investment.

“Simon French, leisure analyst at Cenkos, expects 2015 to be a buoyant one for transactions: “We expect to see an acceleration in M&A as Boards readjust their strategies in the light of increasing supply, cautious consumers and an uncertain regulatory backdrop. There is also likely to be a competitive response to Greene King’s acquisition of Spirit Pub Company.”

“Public markets have proven to be a viable option once again and a number of concepts are known to be considering a flotation. In terms of private equity (PE), there is little doubt that institutional investors will remain prominent in the sector. As well as ‘traditional’ factors that make the sector attractive to PE (e.g cash generation, scalability, clear exit routes), debt markets have loosened, giving the private equity houses additional firepower.

“As BDO’s debt advisory director Ross McDonald explains: “Heightened liquidity has resulted in leverage debt multiples gradually rising, but, despite this, gearing ratios on new deals remain some way short of those seen back in 2007. At the same time economists have predicted interest rates will remain at historic lows for the foreseeable future. Therefore, assuming there are no major economic shocks, we expect these borrower friendly trends will continue into 2015.”

“This is a positive from a PE and corporate point of view in terms of funding a deal, and from an operator’s point of view in terms of achieving a decent multiple on sale. Added to that, trade buyers are showing a renewed interest in the sector, which should drive competitive tension on bids for prized assets. Marston’s has recently announced a wish to invest in casual dining chains, and others are known to be searching the market for acquisitions.

“All of which suggests a buoyant market for buyers and sellers alike. Both have access to capital that can be used to enhance and expand a brand and estate. The most successful deals are those where investor and operator goals are aligned.

“Market conditions suggest that there is growth capital available and investors are keen on the sector – if operators are keen to expand and grow their brand, now is the time to do it.

View BDO’s Winter Restaurants and Bars Report here.

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