Investors shun big casual dining brands for smaller restaurant concepts

Friska store

Smaller restaurant concepts bidding to scale from 10 to 30 sites stand more chance of attracting private equity investment than larger, more established operators targeting 100 sites, a new report claims.

Large-scale M&A has been limited during 2017, with private equity notably more cautious on the sector than in recent years. And according to business advisory firm BDO, this has led investors to rethink their objectives.

“The challenge of taking a 50-site casual dining business to 80-100 sites is perhaps not as attractive in the current environment as it was a year ago,” said M&A director Tom Barnard in the company’s latest Restaurants & Bars Report. “We are seeing investors increasingly attracted to smaller restaurant brands. Taking relatively new concepts from 10 to 30 sites is certainly being viewed as less risky than trying to grow mature brands from 60 to 100.”

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Private equity investors’ interests lie in differentiated, scalable concepts with attractive value propositions. Smaller brands with fewer than 20 stores and clear roll-out stories remain most appealing.

Investors face a highly competitive environment in their search for the best operators. This was evident in the significant interest generated in the Flat Iron and Caravan processes this year, which secured backing from Piper and Active respectively, said Mr Barnard.

“Active’s backing of new fast casual concept CHIK’N, demonstrates the investor interest even ‘pre-concept’. The increasing popularity of chicken and continued trend towards ‘premiumisation’ make the investment thesis stack-up no doubt. 2017 has also seen Barworks invest in Indian street food concept Rola Wala and Imbiba invest in private members’ club Purple Dragon. The club caters for the whole family, appeals strongly to consumers and, with only one site open to date, is ripe for expansion.”

BDO also cited reports which suggest more processes are underway. Cocktail bar Be At One, Liverpool based Indian street food concept Mowgli and Bristol-based healthy eating concept Friska (main image) are all expected to transact in the second half of 2017.

At the larger end of the scale, healthy fast food chain Leon raised a further £25m from Swiss PE firm Spice to assist the business with its plans to expand overseas as well as increase its presence domestically, while US-based TSG Consumer Partners acquired 22% of Scottish brewery and pub chain Brewdog.

Tags : acquisitionsBDOBe At OneBrewdogCaravanCHIK’NFlat IronFriskaImbibaLeonMowgliprivate equityPurple DragonRola Wala
Andrew Seymour

The author Andrew Seymour

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