Inside Track by Mark Stretton
The conclusion of Wimbledon means that July is here and the quiet (silly) season is almost upon us. So before schools break and everyone disappears for their summer hols, here’s a quick run down of what is happening in the market (or what we think is happening in the market), with respect to a few pertinent situations. An Orchid Group restructuring The strong positive PR-driven news flow emanating from this managed pub group, led by Rufus Hall, smacks slightly of a smokescreen. The latest example of this was last week’s announcement of strong like-for-like sales growth and plans to upgrade a further 40 businesses in an ongoing capital investment programme. However, behind the scenes we hear that there is further work to come by its bank and private-equity owner looking at the Orchid structure. Deutsche Bank controls the property company – or “propco” – and GI Partners controls the operating company – the “opco”. GI has been using third party funds to acquire more operating businesses. And it has also taken on management contracts, such as its deal to run Premium Bars & Restaurants on behalf of RBS, to drive further scale. But such is the level of the rents paid to Deutsche Bank in the core business that any profit growth is apparently being eaten up by the ratcheting rents of Deutsche. So it’s time to talk. Pre-empting any negotiations over a restructuring of rents between the bank and GI, will be another piece of work undertaken by a professional services firm. A beauty parade is apparently underway. It will be the second restructuring of sorts inside two years. Paramount disposals First round bids on the 37 up-for-sale leasehold sites, which include some prime central London pitches, were due last week. Gondola and Tragus are the front runners to buy the entire package although Richard Caring is also thought to have been weighing up an offer. The sale, which prompted the resignation of both chairman and chief executive after being triggered by the banks, will leave Paramount as a streamlined operator of about 36 businesses under the Chez Gerard and Brasserie Gerard businesses. However, Tragus, which is backed by Blackstone and has 280 sites under the Bella Italia, Café Rouge and Strada brands, is thought to have tabled a £50m bid for the entire 73 sites operated by Paramount. As has been said in this column before, Tragus is about as perfect a home for Paramount as possible: Brasserie Gerard could be converted to Café Rouge, Bertorelli would go to either Strada or Bella while the more upmarket Chez Gerard business would slot into Tragus’s niche London-centric brasserie arm. The deal makes sense for both parties, offering a get-out-of-jail card to the banks behind Paramount (albeit still below the current loan-book value) and providing an opportunity to Tragus to dilute the high multiples paid for other businesses. And clearly also delivering a sizeable pipeline and further scale opportunities. The sale of La Tasca More a case of what we don’t know than what we do know: there are two bids on the table for La Tasca, apparently at £45m, from private equity firms. One of those bids is thought to involve Paul Symonds, the former chief executive of Bay. Whether the owners, Kaupthing and Commerzbank, are prepared to do business at that level remains to be seen. It is not known if James Horler, the former chief executive of La Tasca, or Tragus are still in the process. La Tasca is producing underlying profits of about £9m to £10m down from £14.5m when it was last sold, and the numbers are said to be deteriorating at a rate. Bay is pressing ahead with disposals at the bottom end of the business in a bid to improve the package and is also proceeding with one-off deals, such as the sale of the Spitalfields location to Fire & Stone. Some sources suggest that there has been more meaningful interest in Ha Ha Bar & Grill. If someone was running a book on this sale, the shortest odds would be available on no deal happening at all. Realpubs on the market? Rumours abound that the high quality and much admired London food-led business headed by entrepreneurs Nick Pring and Malcolm Heap is up for sale via Sapient Corporate Finance. The group is in the process of buying the freeholds of three tied leases from Enterprise Inns for just shy of £8m. This effectively tidies up the business from a sale perspective, leaving it a much more compelling mix of freehold properties and free-of-tie leases. A sale of Realpubs, which is backed by Brockton Capital, would attract interest from Fuller’s, Greene King, Marston’s and Young’s, and probably a few more besides. Those close to the action say agents and frustrated buyers are making mischief – trying to get the business in play – and that the owners have no such intention. It does feel a little early for a sale but there is just too much smoke with this situation for there not to be some fire. S&M Café break up It may be a bit obvious to say but this fledgling six-strong business is heading for a break up. There were no takers for the business as a going concern and nobody wanted to buy the whole lot. Christie & Co, the agent appointed to sell it, has invited individual offers for the sites which are spread across London (www.sandmcafe.co.uk). And finally…another FD to leave The high-profile boardroom comings and goings are set to continue. Although this sort of spurious gossip probably belongs more in a tabloid column, we hear from fairly well-placed sources that another finance director of a well-known pub group is also soon to step down. The rumours are not yet adequately substantiated to offer up a name but watch this space….