Restaurant land grab bodes well for kitchen houses

Private equity investors are slipping off the shackles and aggressively going out in search of new growth opportunities again — and the good news for the industry is that the restaurant sector remains firmly on their radar.

The level of M&A activity involving the restaurant sector has picked up considerably over the last 12 months, with deal volumes displaying a consistency that suggests it is more than just a fad and growing consumer confidence offering investors the assurances they need to splash the cash.

The likes of Palatine PE, Risk Capital, Hony Capital, Bridgepoint, Fulham Shore, TPG and Sun Capital Investment have all been incredibly busy as the ownership of foodservice chains such as Gusto, Philpott’s, The Real Greek, Ask, Zizzi and Prezzo changed hands.

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The biggest deal came several months ago when Hony Capital shelled out an eye-watering £900m to take over highly successful pizza chain PizzaExpress.

Even the pub chains haven’t been immune to the rising level of interest in the hospitality sector from private investors. Hawthorn Leisure, which is backed by the Avenue Capital Group, took over Nectar Taverns, while MaxCap Partners spent £80m buying Amber Taverns, a business that it had previously sold on. And just this week, Greene King shareholders gave the green light to its proposed acquisition of Spirit in a worth some £774m.

All of this bodes well for the catering equipment market because if private equity firms are spending money buying restaurants, they will invariably invest in those businesses to grow them, make them more profitable and, ultimately, to sell them on again for a tasty return.

For most investors, growth usually comes from expanding a chain’s coverage or modifying and enhancing what it does already. Either way, the potential for investment in new kitchen design, equipment and services is greatly enhanced.

The latest restaurant and bar report from business advisory firm BDO, which always provide a fascinating insight into M&A activity in the sector, suggests that private equity companies have no plans to take their foot off the pedal in 2015.

It notes that 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 are all reported to have appointed advisers with a view to a potential sale.

In addition, it says that 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.

“In terms of private equity, 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 — cash generation, scalability, clear exit routes — debt markets have loosened, giving the private equity houses additional firepower,” the report states.

A buoyant market for buyers and sellers alike ultimately means increased opportunities for the equipment supply chain further down the line.

And that is a scenario which will be very much welcomed by everyone.

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