It might have been a bad press week for the private equity industry, but that didn’t stop it gearing up its activity in the UK eating out market.
As criticism of private equity investors by trade unions and assorted politicians continued in the media, it was business as usual at Blackstone, the US investor, which quietly signed off a modest £14m deal to expand its Tragus restaurant investment.
Blackstone is one of the world’s premier league private equity players. It acquired Tragus, operator of the Café Rouge and Bella Italia brands, for £267m at the end of last year.
This week’s purchase of 16 Ma Potter restaurants is small beer by its standards, but nonetheless significant for the restaurant market. It underlined its determination to build up the Tragus business – and quickly.
The arrival of two big league hitters in the shape of Blackstone and Cinven, now owner of the Gondola group of restaurant businesses, has created a new dynamic in the eating-out arena. Until now most private equity investors have concentrated on small to medium sized opportunities.
These two big boys can be expected to be aggressive in their pursuit of acquisition targets in the sector. Blackstone has already been linked to a move for the La Tasca the tapas bar chain, while rumours are that management at Cinven’s PizzaExpress and ASK businesses are on takeover alert, with at least two high profile branded high street chains in its sights.
If the long awaited consolidation in the chain restaurant market is going to happen, these two are the most likely catalysts.
Private equity has a generally good reputation in the eating-out market, having many more successes than failures to its name. Many of the high streets more familiar names have been nurtured to maturity through a series of venture capital hands.
What effect the creation of two well-funded fast-growing casual dining groups will now have on the wider market is open to debate. Will they be able to bring on niche brands, or will they play safe in the mid-market? They should at least offer an incentive for smaller operators to develop new concepts in the knowledge that there are likely to be potential purchasers down the line. Sale multiples can also be expected to stay healthy.
What’s also interesting is the effect the Cinven and Blackstone vehicles will have on the other sizable restaurant groups, Paramount, Clapham House and The Restaurant Group.
Will The Restaurant Group, for example, be prodded into more acquisition activity of its own? Will it become a target itself, perhaps by another big leaguer wanting a piece of the action?
What is certain is that private equity will have a major say in how the British eating-out market develops, at least in the short to medium term. Whether it is an intrinsically good thing or bad thing is perhaps of less importance for operating companies and market entrepreneurs than understanding the impact these latest arrivals, in particular, will have on the shape of the business landscape.
Peter Martin is co-creator of the M&C Report and co-founder of the Peach Factory
