Leading analyst Douglas Jack at Numis said that the proposed offer price for Prezzo, which unlikely to be at a premium to 135p/share, is unattractive, but announcing the approach may flush out higher bids.

Jack said: “Being on the public market does not appear to serve an obvious purpose for Prezzo, with members of the Kaye family owning almost two-thirds of its equity. Although some shareholders might be able to roll their equity interest into a private company, we believe those institutional shareholders that are unable to hold private equity would find a nil-premium 135p/share cash-takeout unattractive.

“The current share price assumes no counter-bid, but we would not entirely rule out the possibility. Even before this approach, corporate activity had returned to 2007 levels this year, both in number of outlets changing hands and EBITDA multiples (averaging slightly over 10x), with private equity heavily involved.”

Prezzo’s announcement was not “made with the agreement or approval of Advent International Plc or TPG Capital LLP” and the board has made no recommendation to shareholders. Jack said this implies that the process is still at an early stage.

He said: “Prezzo shares were trading at 162p/share as recently as March 2014, since when the company has reported a 16% increase in H1 PBT. The 2010-13 earnings CAGR was also 16%, in comparison to which 135p/share would equate to 16.4x P/E and 8.7x EV/EBITDA (2015E) for a company with an £8m net cash position and an 11% freehold estate. The valuation of £1.2m/restaurant compares to The Restaurant Group’s current valuation of £2.6m/restaurant.

“A 9.4x EV/EBITDA (2014E) take-out multiple would arrest a trend of growing exit multiples for restaurants going private: from ASK Central’s 7.3x in 2004; Gondola’s 8.9x in 2006; La Tasca’s 11.0x in 2007; to Carluccio’s 11.5x in 2010. In comparison, Prezzo’s rating recently peaked at 11.7x EV/EBITDA (22x P/E).”