Investment funds and restaurant chains have recently enjoyed a fruitful relationship. Casual dining brands, in particular, been drawn to private equity’s attractive combination of a cash generative business model and capability for fast-paced expansion. In Pragma’s recent F&B whitepaper, of the 10 most frequently visited restaurants in the UK, 7 are PE owned.

BC Partners’ £250m acquisition of Côte in July 2015 from CBPE has been the headline deal in the last year. The transaction represented a multiple of 2.9 x CBPE’s original £100m investment in Côte and an IRR of 78%. These gains were realised over a short 21 month period when Côte opened 23 new outlets at a rate of more than one a month, while still growing EBITDA by 60%.

However, with assets becoming increasingly sought after, prices have risen with EBITDA multiples hitting 12x with Casual Dining Group’s purchase of Las Iguanas. As a result, some of the more interesting recent investments have focused on smaller companies, with investors looking to scale the businesses.

Sourdough pizza chain Franco Manca, acquired by Fulham Shore in March of last year, has since doubled in size from 10 to 21 locations across London. In an already saturated pizza market, Franco Manca stood out for its simple and focused proposition – its restaurants offer a choice of just 6 pizzas and one daily changing dessert, a stark contrast to the 30+ options available at competitors.

A concern for investors when considering smaller chains is their capability to expand outside of London. Regional tastes can often be different to that of consumers in the capital, and prospective investors must consider whether a chain has the ability to understand diverse and evolving consumer tastes while growing nationwide.

A successful example of this is the upmarket burger chain, Byron. Since Hutton Collins’ £100m acquisition of the business it has grown the number of branches from 38 to 63, of which 25 are now based outside of London. Similar to Franco Manco, Byron has a commitment to unfussy food, with founder Tom Byng declaring his restaurants seek to “do one thing and do it properly”. In a market where mass burger brands have sought to diversify and expand their menus, Byron has shone through for its simplicity and commitment to ethically sourced meat. Its successful move from regional to national has changed the scale of the business whilst maintaining its sense of authenticity, creating a proposition that is sure to whet the appetite of potential future investors.

Edmund FitzGerald

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