Coffee and cannibalism
Known for its healthy sandwiches and organic coffee, Pret A Manger has eaten one of its own. It announced lastweek that it had agreed to buy EAT, a fellow UK-based coffee-and-sandwich chain, following a report that the two were in talks to merge.
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
|11-Mar*||Ruffs Burger Restaurant|
(Undisclosed Majority Stake)
|Stefan Huspenina (Private Investor)|
Legal: Osborne Clarke
|14-Feb*||Makarun Spaghetti and Salad(Undisclosed Stake)|
|31-Jan||Beers & Barrels|
|30-Jan||Coffee#1 (70% Stake)****|
|Caffe Nero Group|
|S.A. Brain & Company|
Eversheds Sutherland (advising debt providers)
Legal: DLA Piper
|27-Jan||Starbucks Coffee France|
|Food Service Project***|
Legal: Eversheds Sutherland
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
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