Inside Track by Mark Wingett
There is a strong argument to say that at the moment Luke Johnson is the most influential investor in the UK’s eating out market. Sorry, Mr Caring. Johnson has continued this year where he left off in 2010, investing in the sector and looking to grow strong and sustainable businesses.
Mentions must go to Duke Street for its acquisition of Wagamama, and Lyceum’s purchase of Eat, but it’s hard to beat the former owner and chairman of Pizza Express for the sheer ubiquity of his investment in the sector. A canny and disciplined investor, his current portfolio is set to yield a series of profitable investments.
Through his private equity investment vehicle, Risk Capital Partners, he is part owner of the Giraffe chain, c.50 sites with plans to grow to 75, and the three businesses that were acquired separately and come under the Patisserie Holdings umbrella – Patisserie Valerie, Druckers and Baker & Spice.
Although he has a significant stake in Risk Capital, which still has further money to make strategic investments after raising £75m in 2009, Johnson is also ballsy enough to invest his own cash in the sector.
The man who started Strada from scratch also has personal stakes in the Ego Restaurant group, which recently merged with Rocket Restaurants, and the six-strong Feng Sushi chain.
Last week, through Risk Capital, he strengthened his position in the high-end bakery and cafe sector, with the acquisition of a majority stake in the parent company of the London-based Gail’s Artisan Bakery chain, of which he has reportedly become chairman.
The group immediately set out to add five new sites to the nine-strong chain, with another 10 mooted for 2012.
Risk also seems to be the driving force behind the rapid expansion of Patisserie Valerie. Currently standing at 43, the chain has grown by 50% over the past year and there is talk of taking it to more than 100 sites in the UK, plus 15 in the Middle East.
It is understood that Patisserie Holdings is set to make EBITDA of more than £7m this year, which even at a conservative 7x, would value the group at £50m, around double what it took to put the three chains together.
It seems that Johnson hasn’t stopped there. Although rumours persist that options for a sale of Giraffe are being explored, indications suggest that Johnson will allow the management team led by Russel Joffe to continue to refresh the brand and expand further for the near future.
The addition of 11 Tootsies site in 2009 was a transformational one for the company. With an “in” cost of £4m – £2.5m on the acquisition and £1.5m on refurbishment, or £400,000 per restaurant – one was off loaded, the 10 remaining sites are probably producing £200,000 EBITDA each. This would equate to 2x EBITDA total cost, against an expected valuation for the group of 7x to 9x, which in anyone’s book is a great deal.
It seems that whenever an exit comes, Johnson and founder Joffe are set to achieve handsome returns.
Johnson is also thought to be a leading candidate to acquire the six-strong Real Greek chain and position it with Ego and Rocket under the recently formed umbrella vehicle 3Sixty Restaurants.
Teaming up with James Horler, who grew the La Tasca brand into a c.70 strong estate, a successful acquisition could be another game-changer.
The deal would immediately reduce the nine-strong Ego’s exposure to areas of the country that are being hardest hit by the downturn, give the company a foothold a greater foothold in London and create a 15-strong business with the scale to immediately start to generate revenue.
Overshadowed under the ownership of the Clapham House Group by Gourmet Burger Kitchen, the deal could see a renaissance for the Real Greek brand.
With many private equity groups looking to make pre-recession exits over the next 12-18 months, investment activity in the sector is set to increase. Operators have indicated that dialogue from private equity players has certainly risen over the past few months.
For a man who also has a stake on Automotive Repair Solutions, it looks like Johnson for one won’t be taking his foot off the investment pedal for a while.
Time to back Jac
Tim Martin is not a man to be enthralled by many people, Warren Buffett aside, but last week the JDW chairman found himself quite happily being upstaged by Jacques Borel, VAT campaigner, serial hospitality entrepreneur and French war hero.
Borel was appearing at our sister publication The Publican’s Morning Advertiser’s 250 conference and not only kept an audience nudging 200 of the leading managed pub operators captivated about his life story (a film surely to be made), but spoke passionately about his work to cut VAT for the hospitality industry in the UK.
Through his tireless campaigning he has obtained concession after concession on VAT across Europe. He is now determined to do the same here.
The key to his success has been his energy and his constant lobbying, a point he repeatedly made to those listening. His point is that it may take 10 meetings with assistants before you make your point to one politician but it is a task that has to be done to gain success.
The results of his approach speak for themselves in his native country, which reduced VAT in 2009 for the hospitality industry from 19.6% to 5.5%. The reduction has led to the creation of 40,000 jobs in the sector and the French government handed over Eu2.6bn to the restaurant profession in the form of reduced VAT. In return operators have paid back Eu2.9bn.
Borel believes that even at a pessimistic estimate, 140,000 jobs could be created across the UK’s hospitality industry with a cut in VAT – optimistic estimates top 300,000 jobs.
He expects to get the job done here by April 2014. Backed by Martin (he was the first UK operator to join his VAT Club), and gaining increasing support from other leading figures, getting behind Jac seems like a no brainer, n’est-ce pas?
