Inside Track by Mark Stretton
There is something a little disconcerting about Friday’s 3D Entertainment deal. The purchase of 31 clubs predominantly trading as Chicago Rock Cafes via a pre-pack, has seen a new entrant arrive in the UK leisure market. Not to be confused with Hugh Osmond’s outfit of the same name, Sun Capital is based in America, with several offices in Europe, including London. Here’s a quick rundown of the companies in the eating-out and drinking-out market that the private equity outfit has invested in, that trade within its home market: 1) Bruegger's Enterprises, the second largest chain of bakery-cafes in the US, specialising in bagels. It operates 285 bakery-cafes in 23 states. 2) Fazoli's, one of the largest quick service Italian restaurant chains in the US, with 285 restaurants located in 28 states. 3) Friendly, a vertically-integrated restaurant company serving sandwiches, entrees, and ice cream desserts in 510 company and franchised stores. Its ice cream brand is also sold in more than 4,000 supermarkets. 4) Garden Fresh, which operates 109 salad and buffet-style restaurants across the western, mid-western, southern, and eastern portions of the United States under the Souplantation and Sweet Tomatoes brands. 5) Real Mex Restaurants, a full-service, casual dining Mexican restaurant chain with 189 company-owned restaurants. It includes 70 El Torito Restaurants, 68 Chevys Fresh Mex Restaurants, 32 Acapulco Mexican Restaurants, 9 El Torito Grill Restaurants, 2 Sinigual Restaurants, plus several regional concepts. 6) Restaurants Unlimited, which runs 57 “award-winning” restaurants in 14 states including 16 Kincaid's – an American Fish, Chop, and Steakhouse; 9 Palomino's – an upbeat city restaurant and bar famous for its European-inspired American cuisine; 10 Stanford’s – an upscale casual restaurant featuring grilled steaks, chicken and seafood; and 12 other concepts. 7) Smokey Bones Barbeque & Grill, a full-service family concept in 68 locations across the Eastern and Midwestern regions of the US. 8) Souper Salad, an operator of an 88 all-you-can-eat soup and salad bar family restaurants in 12 southern and western states and 64 franchised Grandy’s quick casual restaurants. 9) Toronto-based Timothy's World Coffee, which operates 166 retail stores under the Timothy's World Coffee brand, as well as mmmuffins and Michel's Baguette quick service casual restaurants. In addition, Sun has interests in just about every type of commercial enterprise one could think of including food producers, supermarkets, convenience stores, clothing brands, clothing shops, golf stores, and myriad manufacturing and engineering businesses. In Europe its best-known investments would probably be Lee Cooper jeans and the SCS sofa shop chain. You can see where I am going. This a serious investment firm with approximately $8bn (£5.3bn) of equity capital under management. The deal to form Atmosphere Bars & Clubs (let’s put the dreadful name and Russ Abbott jokes to one side), which saw Sun pay about £10m – allowing HBoS to recover its debt exposure to 3DE – is an usually small transaction for such a massive outfit. Journalists are inclined to have fertile imaginations, but this purchase feels like a beachhead acquisition – a platform for more bar, club and restaurant deals in the UK – it simply must be. A sophisticated investment firm with deep pockets, and a meaningful knowledge of the US eating-out market…surely it cannot be here for a quick turn on 31 underinvested nightclubs, can it? Theoretically it could buy almost anything it wanted to in the sector. The exact size and scale of Sun’s ambition, and where it sees opportunities, remains to be seen. If it is purely interested in nightclubs, it certainly will not struggle to identify distressed ones to add to its 3DE purchase. If its interest is in the wider eating and drinking-out market, then there is plenty to shoot for. Perhaps La Tasca and Ha Ha Bar & Grill are next on its shopping list. As for the management team from 3DE led by David Crabtree who will remain in place at Atmosphere, this is going to be a real test for them. Sun will almost certainly want a group of senior bods capable of running a significantly larger club business. They have to prove they are the team to back. We probably should not get carried away. For now it has only invested £10m, a number not dissimilar to what Gondola, The Restaurant Group and Tragus will each spend on organic restaurant openings this year. But I cannot be the only person whose curiosity has been suitably piqued.