The deal is just the latest example of a trend sweeping Europe’s dining segment: restaurants acquiring other restaurants.

At the outset of the decade, when recession-scarred consumers were thriftier and valuation multiples lower, private equity rushed to invest in restaurants. Nearly one rotation of the business cycle later, many eateries are struggling to compete in a crowded sector. EAT, for example, announced last year it was reducing its 110 stores by 10% and reported an operating loss of GBP 9.3m on GBP 95m in sales in FY18.

Meanwhile, many diners’ private equity owners - their funds having reached maturity - are unloading them all at once. There are only so many keenly acquisitive financial buyers, such as JAB Holdings, the family office that bought Pret last year and has a taste for restaurants and food brands, to go around.

Sellers’ expectations for hit-and-miss assets are unlikely to be met in a buyers’ market, especially when said buyers are other private equity houses. This creates opportunities for sector peers to slightly outbid financial buyers. Last autumn, private equity Duke Street sold Asian-fusion chain Wagamama, one of the UK restaurant space's rare growth stories in 2018, to The Restaurant Group [LON:RTN] – a conglomerate which does what it says on the tin – for 8.7x EV/EBITDA, below most expectations.

Selection of European transactions in the eatery space announced in 2019

Strategic bidders can synergise variable costs, keeping the target’s brand intact and, behind the scenes, exercise leverage over suppliers. The bidder can also experiment strategically with the target’s operations; see Pret’s reported plan to turn some of EAT’s shops into ‘Veggie Prets’.

Recent transactions that hew closely to the Pret/EAT model include Caffe Nero’s purchase of a 70% stake in Coffee#1 in January and, across the Channel, La Croissanterie’s acquisition of Maison Pradier last December, according to Mergermarket data.

Venturing over the Pyrenees, we find two examples in Spain: Food Service Project’s acquisition of restaurant chain Grupo Vips, and Rodilla Sanchez’s of Hamburguesa Nostra, which sells, well, hamburguesas. As private equities lose their appetite, other eateries remain hungry.

by Deane McRobie in London
 

*: Please note this transaction falls outside Mergermarket official deal inclusion criteria
**: AUCTUS Capital Partners is a related company
***: Alia Capital Partners, Alsea SAB de CV and Grupo Vips are related companies of Food Service Project
****: Coffee#1 reported revenues of 33.76m in financial year ending 30-Sep-18

Deane McRobie Senior Reporter Mergermarket

Deane McRobie is a senior reporter in London for Mergermarket and its affiliated publications Dealreporter, Activistmonitor, and PaRR. His reporting focuses on the consumer, retail and leisure sectors, including scoops on such megadeals as AB InBev’s acquisition of SABMiller, British American Tobacco’s purchase of Reynolds American, and EssilorLuxottica’s bid for Grandvision. Originally from Canada, he graduated from McGill University with a degree in political science and East Asian language studies in 2013, obtained a certificate from Harvard Business School in 2015, and, before moving to the UK, was a political journalist in Ottawa.