Private equity cash still available to bankroll kitchen schemes

Blurred kitchen

Innovative foodservice brands that can differentiate themselves will still attract “healthy valuations” from potential private equity buyers despite challenging market conditions, a leading business advisory has claimed.

Private equity cash has been a major factor in restaurant growth over the last decade, helping to fund huge chain roll-outs and resulting kitchen projects.

But fears that investor appetite might cool following Brexit are unwarranted, according to BDO, which has just published its 2017 Bars & Restaurants Report.

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It insists that private equity still has money it must spend and continues to dominate the buyer pool in the casual dining, bars and pubs sector.

“Typically, sensible gearing ratios and grounded multiples mean that the sector should be relatively resilient in the face of economic upheaval,” it said. “The most innovative brands that can differentiate themselves, despite the difficult market conditions, will attract healthy valuations. Concepts offering specialist cuisine and a better consumer experience appeal strongly to millennials, are expected to see more rapid growth and are therefore a prominent feature on the private equity radar.”

All-day offerings including brunch, carefully conceived sister concepts that broaden appeal and retail partnerships that make economical use of footfall and space are some of the ways that businesses are maximising profits.

It notes that chains that have been the target of private investores have been extending their reach through a number of strategic acquisitions. Cote, for example, which was bought by BC Partners for £250m last year has including Richard Caring’s Jackson & Rye and Limeyard.

Meanwhile, massive institutions like M&B and The Restaurant Group are looking to consolidate and refine their portfolios to compete with more nimble rivals – perhaps a strategy adopted by JD Wetherspoon who recently offloaded 11 pubs to Avenue Capital Group backed Hawthorn Leisure.

BDO predicts that technology will continue to be a game changer and diversifier within the restaurant and bars sector. Food delivery service Deliveroo’s revenues are expected to reach £130m this year and Just Eat has added £3.5m to payment solutions app Flypay’s investment pot as part of a wider campaign to stay ahead of the competition through innovation.

Tossed, Nando’s, Wahaca and more recently McDonald’s are among the businesses attracting publicity – and investor attention – for creative thinking when it comes to technology.

The much talked about sale of Loungers to Lion Capital for a reported £137m also took place in late December. Loungers have been incredibly successful in filling the gap between pubs and coffee shops with its casual all day offering proving highly attractive to consumers.

“The deal demonstrates the continued demand from private equity firms for differentiated, quality and scalable casual dining brands,” said BDO. “Over the next 12 months we expect deal flow will continue at a healthy pace with more emphasis on value as investors refuse to overpay in a challenging and competitive environment. Innovation, flexibility and creativity will be rewarded.”

Tags : BC PartnersBDOCoteDeliverooFlypaykitchensLion CapitalLoungersM&BMcDonaldsNando'sprivate equityRestaurantsThe Restaurant GroupTossedWahaca
Andrew Seymour

The author Andrew Seymour

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