Loungers, the Piper-backed café/bar/restaurant group, has appointed advisors to review its future investment options, which is expected to lead to a sale of the business, MCA has learnt.
It is understood that the Nick Collins-led group has appointed GCA Altium to review its options with a sale to private equity or trade believed to be running ahead of a possible IPO, as the preferred exit. In April 2012 Piper invested £16m into a significant minority stake in Loungers, which was founded in 2002 by Alex Reilley, Jake Bishop and Dave Reid, valuing the then 22-strong business at around £30m. It is thought that the business could now be valued north of £150m.
Although an official sales process has not yet started it is thought that significant interest has already been shown in the business.
MCA understands that pub companies Greene King and Stonegate have previously shown an interest in the c90-strong group.
The group is on track to operate 100 sites by March/April next year across its core Lounge format and Cosy Club concept.
Last week, it posted like-for-like sales for the 12 weeks post Brexit of 4.8%, which represents a marginal uplift in the groups’ like-for-like performance when compared to the 12-week period immediately preceding the referendum.
It opened its latest site, Novello Lounge, in Telford yesterday ahead of a flurry of new openings in the remainder of 2016.
The group confirmed additional 2016 Lounge openings will follow in Northampton, Staines, Oldham, Mumbles and Cheadle as well as a 16th Cosy Club, which will open in Liverpool One in early December, taking the overall openings total for 2016 to 20.
Looking beyond 2016 it is understood that there are already deals agreed on a further 20 sites.
Collins said: “Novello Lounge in Telford is our fourteenth opening this year and the pipeline remains very strong looking ahead into 2017 and 2018 for both brands.”
Comment by MCA editor Mark Wingett
In November 2011, I wrote that the way Loungers was going about its business, in what was at the time the hardest trading environment for the sector many could recall, that there would surely be one hell of a bunfight to be its backer as it targeted a 50-strong estate and beyond. Fast forward a few months, and Piper pre-empted any bunfight. It will be interesting to see if anyone tries to make a similar early play.
Certainly nothing the company has done since 2012 goes against the thought that a further bunfight is surely set to ensue as private equity and trade look to secure what has become one of the UK’s leading eating and drinking-out operations, with plenty left in the tank in terms of growth opportunities.
Born out of Bristol, the group has always understood the provinces and has a clear business model that it sticks to rigorously. It continues to achieve excellent return on investment, still taking advantage of better property deals and cheaper overheads, despite growing competition, as more concepts enter its market town heartland.
It is also not afraid to open multiple sites in the same town or city, without diluting its performance in these locations.
Although it will reach 100 sites by the start of next April, there are still huge swathes of the UK where it has no presence at all. The management team has been open in its belief that the Lounge concept has the potential to grow to c400 sites in the UK, whilst Cosy Club could reach 100. The group has worked hard over the last few years to make sure that neither concepts eats each other’s lunch, with Lounge pitched as a “home from home” versus “a sense of something special” at Cosy Club. Fit out spend for the latter back this up, being on average £900k against £550k for a Lounge.
I understand that average net weekly sales at the group’s Cosy Clubs in its most recent financial year stood at £30.8k versus £16.3k across its Lounge estate.
The group also comes with a strong culture and management team in place. The problem of succession planning resolved early, in the shape of chief executive Nick Collins and chief operating officer Justin Carter, complementing Reilley and Bishop, the recently appointed managing director of Cosy Club. It is a credit to Collins and Carter that they have been left with the day-to-day running of the business and keeping the group’s culture intact.
Whatever the options for the group, at one point an IPO was the favoured route, the company will be keen that the culture play is kept intact, aided by what the company calls its “Glue Crew” – a mixture of senior and junior employees that the company uses as a bellwether or steering group of how the group’s culture is developing. A culture that is celebrated with the group’s now annual Loungefest celebration.
Collins, who initially joined as finance director just before the deal with Piper, then stepped up to chief executive in January 2015 , says: “There is always going to be the challenge of following Alex and Jake as founders, but they have made that process for me and Justin very easy. It is their culture, but it doesn’t belong to them anymore, it belongs to the c1,500 people who work in the business.”
In terms of suitors, Loungers has long been viewed in some quarters as the perfect acquisition for Greene King, Marston’s, Stonegate or M&B, as all four look to tap into its “modern take on a pub” credentials and ramp up their food-led credentials in the process. Indeed, a look at some of the concepts currently being tested or rolled out by these groups, Ebb & Flow anyone, suggests that some are already trying to repeat Loungers successful formula off their own back.
For me a private equity play still looks the more likely option, allowing Reilley and Bishop to stay involved, whilst also allowing Collins and Carter more skin in the game and protecting the ethos of the company they have worked hard to establish. From the outside it also looks like they are still enjoying what they do, the wider sector and the opportunities that still exist for the business. There are still plenty of frustrated private equity houses looking to enter the sector, plus a number, TPG, BC Partners, Bridgepoint, keen on consolidation.
A successful process would also kick off what could be a significant 12-18 months for Piper, with Loungers’ stablemates Be At One and Turtle Bay also expected to come to market next year, and each not expected to lack for suitors.
But first interest will turn to the much anticipated sale of one of the jewels in the UK’s eating and drinking out market. Let the bunfight begin.