Consumer Sector Comment – September 2015

Dato

At the start of the year, we commented on high levels of investor activity in the dining sector and this is an area that has continued to sizzle! Increased levels of eating out driven by time poor consumers, stronger consumer spending across a number of markets, and the opportunity for rapid expansion of new concepts all make the sector particularly attractive.

The US has seen a flurry of restaurant listings on the public markets, with highly successful IPOs from burger chains, Habit in 2014 and Shake Shack in 2015.  These have been followed more recently by chicken specialists, Bojangles (southern-style chicken) and Wing Stop (chicken wings). The 4th restaurant IPO in the US this year was Brazilian premium steak chain, Fogo de Chao. The group is currently smaller than the others with less than 50 restaurants but plans to increase its company owned restaurant count by at least 10% annually over the next 5 years, as well as collaborating via joint ventures in Asia, Australia and Europe. All saw share price increases, ranging from 25 – 120% in first day trading.

European markets have also seen recent activity in the sector. For example Toridoll Corporation a Japanese listed restaurant operator acquired a 60% stake in Dutch restaurant chain Wok to Walk. Wok to Walk operates over 60 restaurants specialising in Asian food located in Europe, the United States, Africa and South America. Meanwhile, JAB Holding Co., the investment arm of the billionaire Reimann family, continued to expand its global caffeine empire with an agreement to buy the Nordic region’s largest branded coffee-shop chain, Espresso House in June, followed by Baresso Coffee, the largest coffee shop chain in Denmark, later in the same month.

Also in the café space, Spanish mid-market player Nazca Capital has acquired Europastry, one of the leading players in the bakery-café segment, and Taberna del Volapié, which will be merged to form the Foodbox brand. The group is looking to increase its outlet numbers from around 100 to 350, via an acquisitive and franchising growth strategy.

However, the UK has been the real hotbed of European restaurant activity in both 2014 and 2015. PE has been especially active looking for opportunities to roll out successful concepts rapidly on the back of increased levels of consumer spending and changing structural trends in eating habits. This has included:

  • Sale of TGI Friday’s UK operations to Electra Partners at the start 2015 for €310 million;
  • € 345 million sale of ASK and Zizzi now renamed Azzurri Group to Bridgepoint in 2014 followed by Azzurri’s smaller acquisition of Italian quick-service  chain, Coco di Mama in summer 2015
  • And the acquisition of French brasserie chain Cote by BC partners for € 345 million;

…but there has also been plenty of appetite for smaller restaurant deals:

  • Casual Dining Group (backed by Apollo Global Management) won the fiercely contested auction for Las Iguanas, a South American themed chain for £85 million, giving Bowmark Capital a 3.7x return on its original investment.
  • CDG swiftly followed this with the acquisition of La Tasca for € 35 million. The group has already refocused its Café Rouge and Bella Italia operations and is looking to operate a multi-brand portfolio. Commenting on the latest acquisition, CEO, Steve Richards said:”It fits perfectly with our strategy to create a scalable restaurant group comprising compelling brands, with broad appeal, which deliver industry-leading consumer and financial metrics.”
  • Palatine Private Equity backed the €18 million MBO of cocktail / restaurant chain the Alchemist, following an earlier investment to back the € 14 million buyout of Italian restaurant group, Gusto;
  • Active Private Equity invested € 9.7 million in gourmet burger chain, Honest Burgers.

At Clearwater International, we believe there are significant opportunities in the restaurant sector.There is potential to take small restaurant chains and grow them with private equity funding and in time pass them onto other private equity funds. But there is also good evidence to show that strong restaurant businesses can run multiple brands and share the expertise across different fascias and this creates appetite from the trade buyer. The IPO market remains open in most territories to restaurant chains with growth. Given improving consumer spending and a higher propensity to eating out we expect the restaurant sector to remain active in our key geographic markets.

 

Selected UK Consumer Deals

Descente Ltd, a listed Japanese sportswear company has agreed to acquire an 80% stake in inov-8 Ltd, the sports shoe brand from PE investor, Living Bridge. The acquisition by Descente will allow the management team to accelerate the next phase of their international growth plans

Hero Cycles Ltd, the leading Indian manufacturer of bicycles, has acquired an undisclosed controlling stake in cycle distributor, Avocet Sports Ltd.The acquisition marks Hero’s entry into the European market.

TM Lewin management, backed by Bain Capital affiliate Sankaty Advisors, has bought out Caird Capital’s 20% stake in the business. TM Lewin’s management already owned 80% of the business.

Bridgepoint Development Capital have backed the management of Taste Marketing Ltd and The Gourmet Society, dining clubs which provide their members with discounts at restaurants, hotels, and inns, in a management buyout transaction, from Didix BV.

Enotria Winecellars Ltd, an importer and distributor of wines acquired Coe Of Ilford Ltd, trading as Coe Vintners.
Menkind Stores Ltd, a retailer of gifts and gadgets aimed at men, has acquired Red 5 Retail Ltd, also a retailer of gadgets and toys.

MyOptique Group Ltd, a company operating as an online optical glasses store, and a portfolio company of Index Ventures, has acquired Eyewear Brands Ltd, an online eyewear retailer, and 4CARE GmbH, a German company engaged in the sale of contact lenses and related care products.

NBTY, Inc., a US-based manufacturer and distributor of nutritional supplements, and a portfolio company of Carlyle Group has agreed to acquire Dr. Organic Ltd, a UK-based manufacturer, marketer and distributor of personal care products for a consideration of €77.5 million.