Mere minutes after the ink was dry on signing the papers that would see Spice Private Equity, a Swiss investment company, invest £25m on acquiring a significant minority stake in the business he co-founded in 2004 with Henry Dimbleby, John Vincent was at the nearest Leon site. Along with chief financial officer Antony Perring, he helped staff open the place up and get ready for the day ahead. There was no sense of resting on his laurels, Vincent felt energised but was also steeling himself for what lay ahead, the group’s much mooted push in the US and continued growth in the UK.
Not for him a trip home and a sleep after a final night of negotiations. “I had no desire to sleep, I have a desire to win. The new investment is energising, but we have to be prudent, this is not spending time, you have to be paranoid in order not to stand still. To be successful Leon needs the right purpose, the right leaders and the right investors. To become the world’s leading naturally fast food company we need partners who share the vision and can help make it happen.”
Unsurprisingly due to the success the group has had over the last few years, it’s been approached by many potential partners with regard taking in new investment. Last August, it secured a new funding deal worth £19m from bank OakNorth, which will be used to further strengthen its UK operations and presence (the target is to open a further 50 sites in the next four years). It is hoped the introduction of Spice, a subsidiary of global private equity firm GP Investments, will provide the impetus and resource for Leon to take that international step.
Vincent says: “The decision to say yes to Spice was because of the high regard I have for the individuals of GP Investments, who manage Spice.” That regard in many ways is borne out of the investment firm’ previous work with Fogo de Chao, a Brazilian steakhouse concept.
The success of Fogo de Chao, like Leon, was a slow burner (the latter generated its first ever pre-tax profit in 2014). Founded in Brazil’s southern cowboy state of Rio Grande do Sul in 1979, the “churrascaria” (Brazilian-style steakhouse) operator opened its first restaurant in the US in 1997. By 2006, it had grown to nine sites when GP Investments and co-investors acquired an initial 35% stake.
Since GP Investments’ initial investment, Fogo de Chão has grown the number of restaurants from three to seven in Brazil and from six to 18 in the United States, while ensuring it maintained its market-leading EBITDA margins among peers in both US and Brazil. Revenues grew at a CAGR of 15% while EBITDA grew at an 11% CAGR. In 2011, GP Investments and co-investors acquired the remaining 65% stake, a possible precursor to an exit for Leon’s founders and current long-term shareholder Active Partners.
In 2012, GP Investments announced the sale of 100% of Fogo de Chao to Thomas H. Lee Partners LP, a private equity firm headquartered in Boston, in a deal valued at $400m. The successful investment in Fogo de Chão returned to GP Investments and its co-investors a 3.4x cash-on-cash multiple and an IRR of approximately 24%, in six years. The bidding process attracted more than 15 potential buyers. Since 2015, the business has been listed on NASDAQ.
It is too early to say whether this is the road that Leon finds itself on, but it faces another significant 12 months in its development. A US launch is pencilled in for the second half of this year, with Orlando mooted as a possible debut location. The group has had its eye on the US for a number of years. In 2012, Brad Blum, the former chief executive of Burger King and Olive Garden Italian Restaurants, joined its board as an investor, non-executive director, and strategic partner.
The group is also aware that for many UK brands making the transition to the US, it is a long and winding road to gain a foothold and growth. It will also face a casual-dining market that is contracting and under pressure.
Vincent is very aware that he will need to reset and that for the US will need the company to tap into a start-up culture. He says: “I need to remember some of the founder’s mentality, not to take it for granted, remember it is a start up and that people there will not know Leon and not care about us there. I need to do in the US what we did 13 years ago here, in Carnaby Street. We have an amazing set of advisers in the US, but it is definitely an opportunity and not a right. We definitely don’t see it as a right to be successful. We will inevitably make mistakes.”
Vincent is also determined that any move into the US doesn’t impact on the group’s continued growth in the UK, where it currently operates 46 sites and is looking to ramp up its regional presence, or its fledgling concessions business in The Netherlands. The company is expected to double its headcount in the next 12-15 months from 1,000 staff to 2,000. It is also eyeing openings in Leeds, Glasgow, Edinburgh and Bristol. Vincent says: “There will be continued focus on growth in the UK, making sure here is totally nailed in terms of operations, consistency and innovation; consistency of service, innovation, pipeline and growth. We need to create a really disciplined performance culture here.” The appointment of former McDonald’s senior director John Upton as its new managing director was a significant step in the company reaching that goal.
Leon is certainly on a roll in the UK, where its fast-casual and health credentials have found a consumer sweet spot. It will report its 2016 performance next month, and it is sure to have improved on the £2.26m EBITDA and £36.9m full-year sales figures from 2015. Vincent has always seen Leon as having the potential to be an international business, while Blum declared in 2012 that he believed it deserved “to be a big global force for good”. The latest investment in the group has added some spice to those thoughts. Now Leon will hope it can follow the boys from Brazil.
