Paul Hemming, managing director of AlixPartners, looks in detail at the figures from this year’s Growth Company Index, produced in partnership with MCA. In this article he looks at the enduring influence of private equity on growth companies.
Private equity is a substantial and significantly positive force in the UK eating and drinking-out market, driving investment, growth and job creation. PE investors of various sizes and shapes stand behind more companies than ever in our growth index: 28 of the top 50 companies in this market, 56% of the index, a number that has moved up each year (2016: 44%; 2015: 42%; 2014: 40%).
PE’s involvement with the top 50 growth companies is for the first time spread fairly evenly through the list, from the very top to number 50. PE firms have significant stakes in seven of the top 10 companies, 12 of the top 20, 17 of the top 30 and 22 of the top 40.
The list of top 10 companies that are backed by PE underlines that the eating and drinking-out market has a number of sector-specialist investors. Almost without exception, the PE firms that support the companies in our index are multiple investors in the leisure market and well-versed in the challenges and opportunities that face multiple-site bar and restaurant companies, in expansion mode.
Piper’s investment in Turtle Bay in 2013 was the latest in a series of successful investments for the leisure specialist. It also backs Be At One and Flat Iron and was a shareholder in Loungers until December 2016, when it sold its stake to Lion Capital in a deal that valued the business at around £137 million. The transaction marked a return to the sector for consumer industries-specialist Lion, which previously backed Wagamama and has also held stakes in All Saints, Jimmy Choo and Weetabix.
Of the top 10 firms backed by PE investors, New World Trading Company was also the subject of new investment in the last year, from Graphite Capital, another sector specialist that also backs Hawksmoor, Corbin & King and the Groucho Club. These investment firms understand the ingredients for success in this market and are therefore highly attractive to incumbent management teams, who recognise the operational value these investment partners deliver across multiple disciplines, whether it’s brand, property investment, workforce, or management infrastructure.
For the purposes of this study and our analysis of the ownership of the top 50 within the index, we have included any business backed by the Business Growth Fund (Giggling Squid) and businesses owned by Richard Caring (Bill’s) as PE investments. Regarding the latter, it is noteworthy that Caring seems intent on holding his investment in Bill’s for longer, against a self-confessed sense that he sold Côte too early in its development and expansion trajectory.
Of the other companies in this list of top 10 firms backed by PE, some – such as the aforementioned Be At One and Turtle Bay, plus Tortilla – are almost certainly nearing the end of their current investment cycles and will therefore likely be assessing options in the next 12 to 18 months, market conditions allowing.
