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News round-up: restaurants

24 December 2005 by

2005 was a massive year for the restaurant trade and it doesn't look like slowing up any time soon. Ross Bentley looks at the year that was.

This year the British public's growing appetite for wining and dining has been matched only by the hunger for wheeling and dealing in the restaurant sector.

Over the past 12 months the dining public have munched their way through about 28b-worth of meals, according to market research firm Mintel. This represents a rise of 5% on last year, and shows that leaving the house for a meal is now ingrained in UK culture.

Nigel Popham, investment analyst at stockbrokers Teather & Greenwood, said the sector was still growing despite a "subdued consumer environment". "Our lifestyles have changed, and we have more money to spend on eating out," he added.

The belief that the trend is set to continue has attracted investment from both public and private investors. It's also resulted in an impressive line-up of stock market flotations and buyouts.

Spanish tapas chain La Tasca got the ball rolling in February when it announced it would float on the Alternative Investment Market (AIM) for £54m.

This was followed in June by the news that Graphite Capital, the owner of Wagamama, had agreed to sell its majority stake in the noodle-bar chain to another private equity firm, Lion Capital, for £102.5m.

Yet it wasn't until the end of the year that the deals really started to roll in.

In November, Gondola Holdings, the owner of the Pizza Express and Ask brands, listed on the London Stock Exchange with a market capitalisation of 431m. Then, in the same month, private equity firm Hutton Collins made, and was granted, a £30m bid for seafood chain Loch Fyne Restaurants.

December saw Italian caf-cum-deli chain Carluccio's list on AIM, valued at £53.6m. This was promptly followed by the news that Image Restaurants, operator of trendy London eateries the Avenue and Kensington Place, was gearing up for flotation or sale in March 2006.

John Lake, corporate finance analyst at Deloitte, said the relatively high valuation prices of these companies reflects the robustness of the market. "These are solid brands, which work their micro-markets well," he added.

Restaurant businesses are being priced at about 10% more than last year, according to Lake. Despite high prices, however, he predicts more transactions in the New Year, although possibly at the lower end of the market.

"If investors are looking for value, they might now have to look at smaller brands - although they bring with them a greater element of risk," he said.

Nowhere is this risk more apparent than at Urban Dining, the cash-shell start-up group which bought burger chain Tootsies in November 2004. Despite high hopes to grow the group nationally and acquire further brands, Urban Dining announced this month that it is reviewing the future of the chain of 30 restaurants, after poor sales and a drastic fall from its original share price of 50p.

With competition in the sector so intense, analysts say the time for consolidation is now.

Lake pointed to the Clapham House Group (CHG) as an example. CHG this year added the six-strong Gourmet Burger Kitchen chain to its portfolio of Real Greek and Bombay Bicycle Club brands - and announced maiden profits.

Paramount, the company behind the Livebait, Chez Gérard and Bertorelli brands, added Caffé Uno to its stable in November after buying the chain from The Restaurant Group (TRG) for £33m.

"We have started to see recognition of the value of consolidation in the market," said Nick Basing, Paramount group's chief executive.
"It brings economies of scale, and with scale comes more buying power, established career paths for employees, more churn of the property estate, menu development and food innovation."

The property angle here is key. Basing notes that the Caffé Uno deal brought with it "a stellar set of sites" in affluent suburbs and cities. These locations, he pointed out, would be "extremely difficult to replicate, even in the medium term".

This viewpoint is backed up by Trevor Shelley, partner at leisure property agency Shelley Sandzer. Expansion through acquisition, he says, is a trend set to continue.

The reasons are these: there is severe competition for key locations in prime London areas like Covent Garden, Chelsea and Mayfair, and the situation is mimicked in other major cities; moreover, new licences are not being granted by local authorities.

"The demand for new licences has remained consistent, but supply has dried up," said Shelley.

Evidence can be seen in the high premiums paid for London sites like Scott's in Mayfair and East@West in Covent Garden.
Shelley advises companies to be more creative when looking to enlarge, suggesting they consider options such as developing properties adjacent to their restaurants rather than looking elsewhere.

Despite the woeful predictions emanating from the chancellor about the economy in 2006, analysts think the restaurant sector is robust enough to survive any dip.

"Last time there was a dip in the economic cycle restaurants suffered, because eating out wasn't established in the UK. It will be interesting to see how the sector is treated by investors this time round," said Lake.

The year in restaurants

January

  • Legal & General Ventures buys Café Rouge owner Tragus for about £90m.
  • Michelin results for the UK are released.

February

  • The Restaurant Group (TRG) buys a 40%, £7.7m stake in restaurant and bar operator Living Ventures. It also sells its flagging Est Est Est chain of 19 Italian restaurants to the group for £16.4m.
  • Spanish tapas chain La Tasca floats on AIM for £54m.

May

  • Restaurant group Paramount, owner of Chez Gérard and Bertorelli, accepts Craftbutton's offer to buy the company for £30m.

June

  • Graphite Capital sells its majority stake in Wagamama to private equity firm Lion Capital for £102.5m, retaining a minority interest.
  • Seafood chain FishWorks floats on AIM for £10.7m.
  • Retail entrepreneur Richard Caring buys restaurant group Caprice Holdings from Signature Restaurants for an estimated £30m.

July

  • Scott's restaurant in London's Mayfair sold to Caring.

September

  • Caring pays £60m to add pizza chain Strada to his burgeoning restaurant empire.

October

  • Celebrity chef Jean-Christophe Novelli quits his role as director and chef-patron of Brocket Hall following a dispute over unpaid fees.
  • Clapham House Group completes its acquisition of Gourmet Burger Kitchen six months ahead of schedule for a total bill of £10m.

November

  • Michelin launches its first US guide in New York.
  • Ask and PizzaExpress owner Gondola Holdings floats on the London Stock Exchange with a market capitalisation of £431m.
  • TRG announces the sale of its Caffé Uno brand to competitor, Paramount for £33m.
  • Bank Restaurants pays Conran Restaurants £1.5m for its four-strong Zinc Bar & Grill chain. The deal also includes Etain in Scotland.
  • Private equity firm Hutton Collins makes a £30m offer for seafood chain Loch Fyne Restaurants.

December

  • Urban Dining says it will pull out of the restaurant game and put its 30-strong Tootsies chain on the market in the New Year.
  • Italian café-cum-deli chain Carluccio's floats on AIM, valued at £53.6m.
  • Image Restaurants, owner of London's the Avenue and Launceston Place, indicates intention to float or sell in early 2006.

Openings and closures 2005

Top 10 openings

  • Maze, London
  • Galvin, London
  • Nobu Berkeley, London
  • Shanghai Blues, London
  • China Tang, the Dorchester, London
  • Roast, London
  • The Black Door, Newcastle
  • Bentley's, London
  • The Ledbury, London
  • Luciano's, London

Top 10 closures

  • Osia, London
  • Atlantic Bar & Grill, London
  • East@West, London
  • Isola, London
  • Thyme at the Hospital, London
  • Putney Bridge, London
  • Shumi, London
  • Merchant House, Ludlow
  • Monsieur Max, Hampton on the Hill, Middlesex
  • Love's, Leamington Spa

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